Joseph Mhakayakora-Chairman Charles ChikauraMargaret SangarweCharles Simbarashe Tawha
Investment Committee
Risk Management Committee
BOARD COMMITTEESBOARD COMMITTEES
5
EXECUTIVE MANAGEMENTEXECUTIVE MANAGEMENT
Charles ChikauraChief Executive Officer
Cassius GambingaExecutive Director – Finance
Alexious MachimbirikeActing Director – Infrastructure
Projects Division Assistant Director – Private Sector
Projects Division
Norbert Munengwa
6
Executive DirectorCorporate Strategies & Human Resources
Francisca ZinyembaDesmond MateteExecutive Director – Legal & Corporate
Advisory Services
VISION
· Integrity.
· Professionalism.
· Team Work.
· Service Orientation.
· Social Responsibility.
The Vision of the Bank is to be the preferred provider of development and related finance for economic growth
and social transformation in Zimbabwe and the region.
MISSION
The Mission of the Bank is to champion infrastructure development through effective mobilization of
appropriate resources for sustainable socio-economic development.
CORPORATE VALUES
In carrying out its Vision and Mission, the Bank's operations will be underpinned by the following values:
This forms the Bank's core value as it undertakes its work in a transparent and honest
manner, which nurtures trust and client confidence as we deliver value to customers.
In pursuit of our specialist mandate, the Bank's work will be anchored on high
quality, expert application, knowledge and proficiency.
Our work mainly comprises collaborative efforts to harness value-driven
partnerships through deliberate co-operation with various stakeholder groups.
Development banking is about sustainable value delivery to the community. Our
focus is thus geared towards optimal service delivery to our clients.
Deriving from the Bank's statutory mandate, IDBZ's activities are centred on
developmental interventions to communities and the public at large with a view to
improving the living standards of the population of Zimbabwe.
VISION
VISION AND MISSION VISION AND MISSION
7
The Infrastructure Development Bank of Zimbabwe’s mandate and corporate objectives are stated in the
establishing statute, the Infrastructure Development Bank of Zimbabwe Act [Chapter 24:14]. These are
stated as follows:
· the mobilization of debt and equity funds from both internal and external sources drawn mainly from
private and public sector investor-institutions, to include Government and quasi-government institutions,
for investment in infrastructure projects;
· the promotion of economic development and growth through investment in infrastructure development in
all sectors such as energy, housing, water, agriculture, transport, information communication technology
and other infrastructure critical for national development;
· to develop institutional capacity in business undertakings and enterprises of all kinds in Zimbabwe through
enhanced capacity-building and utilization; and
· the overall improvement of living standards and quality of life of Zimbabweans through the development of
infrastructure which includes roads, dams, water reticulation, sewerage, housing, technology, and other
amenities and utilities for both urban and rural communities.
IDBZ MANDATE AND CORPORATE OBJECTIVESIDBZ MANDATE AND CORPORATE OBJECTIVES
8
CHAIRMAN'S STATEMENT FOR 2012CHAIRMAN'S STATEMENT FOR 2012
Introduction the adoption of the multicurrency framework in I am pleased to report 2009. that the Bank has once
again managed to post At an estimated 4.4%, real economic growth in a commendable set of 2012 was, however, much lower than the 9.4% financial results for the growth rate projected at the time of the 2012 financial year announcement of the 2012 Budget in November and, in the process, 2011, largely reflecting lower-than-expected consolidating on the performance in agriculture and mining. gains that began with
the introduction of the multi-currency system in Looking ahead, the economy is projected to 2009 despite the challenges facing the economy at continue expanding, though at a moderate pace of both the micro and macro levels 5% in 2013. This would be marginally below the
projected average 5.5% growth rate for the whole of The Bank continues to show uncharacteristic Sub-Saharan Africa. resilience in the face of unremitting liquidity
challenges facing the economy and external factors The slowdown in economic growth in 2012 was as a militating against the institution's ability to mobilise result of poor rainy season, and an unfavourable resources for the much needed infrastructure global financial environment, among other development. endogenous and exogenous factors. Key economic
sectors such as agriculture, mining, manufacturing The Bank broke new grounds by successfully and tourism posted lower growth rates in 2012 as a launching the first Infrastructure Bond in the result of the challenging economic environment.domestic money and capital market, post
dollarisation. This followed Government's issuance Pricesto the Bank of the mandate to employ the bond Turning to inflation, prices remained low and stable instrument to mobilise medium to long term funding during the course of 2012, with year-on-year for key infrastructure projects. inflation closing the year at 2.9% in December
2012, down from 4.9% in December 2011. This The Bank was able in 2012 to raise US$17.8 million compares favourably with the 2012 7.9% average through its first Infrastructure Bond issue. This end-period rate for Sub-Saharan Africa.financing instrument is expected to play a pivotal role
in harnessing domestic savings, and re-directing Factors which contributed to the stability of prices in them towards the growth engines of the economy. 2012 included improvements in the supply of goods
and services, tight liquidity conditions, intense Economic Environment market competition and the weakening of the South
African rand vis-à-vis the United States dollar. Growth
After recording strong double-digit real growth of The outlook for price stability remains positive, with 10.6% in 2011, the economy continued on the expectations of annual inflation remaining below 5% growth path into 2012, posting its fourth in 2013. This is against the background of stable consecutive year of positive economic growth since international oil prices and anticipated
Introduction
Prices
Economic Environment
Growth
9
CHAIRMAN'S STATEMENT FOR 2012CHAIRMAN'S STATEMENT FOR 2012
improvements in domestic capacity utilisation, points. Market capitalisation rose by 11.5% to
among other factors. US$3.89 billion on the back of the growth in the
industrial index.
Financial SectorExternal TradeThe banking sector continued to grow in 2012 as The country's trade deficit remains of major reflected by the 25.4% increase in total banking concern, with a deficit of US$3.6 billion recorded sector deposits, adjusted for inter-bank deposits, during 2012 as exports amounted to US$3.88 from US$3.1 billion in 2011 to US$3.9 billion by billion against imports of US$7.48 billion. Hence, 2012 year end. the need to further grow and diversify the economy's
export base towards more value addition domestic The maturity structure of bank deposits has,
manufacturing cannot be over emphasised. however, remained predominantly short-term, with
such deposits accounting for 82% of total deposits Support for Infrastructure
in 2012. Investment in infrastructure remains a critical
component towards addressing some of the Loans and advances to the private sector grew by
inefficiencies inherent in the domestic production 29.2% to US$3.56 billion in 2012, in response to
value chain, necessary for enhancing the country's increased growth in banking sector deposits. The
overall industrial competitiveness and the realisation bulk of the loans and advances went to Agriculture,
of sustained further rapid recovery of the economy.21.05%; Distribution, 20.31%; Manufacturing,
19.61%; and Households, 13.71%. In this regard, the Bank remains live to its supportive
role in dealing with some of the threats to investment Mirroring the short term nature of bank deposits,
in public infrastructure, including challenges related short term loans for the financing of working capital
to absence of meaningful long term funding. requirements accounted for 94.8% of loans and
advances. The Bank is, therefore, working on innovative
funding structures for infrastructure projects in the Banks' lending interest rates remained high during
country in partnership with regional development 2012, with annual rates ranging between 8-35%,
finance institutions. further exacerbating companies' financial distress.
Locally, the Bank is building on the lessons learnt An inactive inter-bank market, coupled with a more
from the successful launch of its maiden robust Central Bank lender of last resort capacity,
Infrastructure Bond issue to structure more would have under-pinned even stronger banking
financing instruments in pursuit of its resource sector performance in 2012.
mobilisation mandate.
Performance on the Zimbabwe Stock Exchange was Through its advisory and monitoring role, the Bank
mixed, with the industrial index posting a 10% gain continues to deliver cost effective solutions to
to 152.4, points while the mining index shed 79.8 infrastructure rehabilitation programmes being
points to close the year 18.4% lower at 65.12 undertaken by Government.
Financial SectorExternal Trade
Support for Infrastructure
10
CHAIRMAN'S STATEMENT FOR 2012CHAIRMAN'S STATEMENT FOR 2012
In this regard, and within the constraints of limited the tighter liquidity situation that prevailed during
funding, significant progress was recorded on the year.
Government funded infrastructure related projects
the Bank was involved in during the course of 2012. Cost containment and judicious management of the
loan book were also key in that regard.
Other Developmental Activities
In pursuit of its developmental mandate, the Bank The Bank, however, continued to be hamstrung by
continued to support the private sector with working the adverse effects of the non-performing legacy
capital requirements. foreign debt.
The Bank has developed innovative financing Dividend
structures to support new farmers and other The Bank is committed to a policy of rewarding
institutional entities involved in agriculture. shareholders for their continued support to the
institution.
With regards to support for youth empowerment,
the Bank continues to manage the Youth For the financial year under review, the Board has
Development Fund, which is funded by recommended a final dividend of US$0.21 per
Government. The Fund provides loans to small scale share on the issued ordinary shares.
youth projects with potential to create employment.
Capitalisation
The relative success of the Fund has seen some An adequate capitalisation level is key to unlocking
private sector players come on board and funding that will enable the Bank to carry out its
contributing towards complementing the Fund's mandate of mobilising resources in support of
limited resources. infrastructure and other development challenges.
In this regard, I would like to commend Meikles Ltd In this regard, the Bank's capitalisation remains a key
for partnering with the Ministry responsible for the strategic issue for the Board and Management.
Youth by providing a significant amount of seed
money to capitalise the Youth Development Fund, However, the Bank is alive to financial constraints specifically targeting support towards horticulture
Government faces due to limited fiscal space.ventures.
The high gearing, as a result of the US$38 million Financial Performance
legacy foreign debt, has been a major challenge for The Bank's financial performance for the year under
the Bank in as far as resource mobilisation is review was commendable. The institution recorded
concerned.total comprehensive income of US$3.5 million
which was ahead of budget and significantly higher Government is aware that the Bank will not be able than the prior year figure of $1.2 million. to realise its full potential until the issue of the legacy
foreign debt is resolved. The good performance was achieved despite the
declining interest margins, reduced loan book and
Other Developmental Activities
Dividend
Capitalisation
Financial Performance
11
CHAIRMAN'S STATEMENT FOR 2012CHAIRMAN'S STATEMENT FOR 2012
In this regard, the Bank is working with Government, Furthermore, the Bank was able to conclude a
the major shareholder, to restructure the debt by number of noteworthy strategic alliances with other
hiving it,off together with matching assets, into a development finance institutions (DFIs) in the
stand-alone Special Purpose Vehicle. region, as well as with other private sector
institutions specialising in development finance and
It is my sincere hope that once freed from this debt, advisory service.
immense opportunities will open up for the Bank in
both the domestic and foreign capital markets. The Bank was chosen by the Japan International
Cooperation Agency (“JICA”) as its preferred
The Bank will continue to court regional and development partner in Zimbabwe, and
international development finance institutions to engagements towards the signing of a Memorandum
take up equity in the Bank in order to broaden the of Understanding (“MOU”) are in progress.
shareholder base. This should also enhance sources
of funding, thereby enhancing the Bank's capacity to The Bank hopes to benefit from JICA's renowned
raise debt capital to fund the relatively large pipeline expertise in developmental issues across the globe.
of infrastructure projects.
The Bank will seek to leverage on all its business and
In this regard, the Board welcomes the recent financial relationships as it seeks to raise both debt
decision by the US Treasury to ease restrictions on and equity capital to finance infrastructure and other
the Bank, a development that will allow the developmental projects.
institution to do business without undue hindrance.
Corporate Governance
Strategic Alliances The Bank subscribes to the principles of sound
The Bank continues to derive immense benefits from corporate governance and ethical standards in the
its membership to the SADC Development Finance conduct of the institution's affairs.
Institutions network.
Hence, the Board regularly reviews its governance
Several senior Bank employees were beneficiaries of structures to ensure conformity to international best
capacity building training programmes offered by practice, and as a minimum to ensure adherence to
the network. recommendations of the King 111 Report on
corporate governance as well as Government of
The proposed acquisition of Government’s 4,5% Zimbabwe's corporate governance principles for
shareholding in Norsad Finance Limited by the Bank state enterprises and parastatals (SEPs).
valued at $3.3 million will place the institution in a
strategic position owing to Norsad’s shareholding In this regard, the Board constituted a number of
dirversity and investment strategy which is focused Board Committees, including the Audit Committee,
on the SADC region. as specialist organs to assist the Board in its
oversight role. The Board and the various
The Bank is already in discussion with Norsad Committees meet regularly, and at least quarterly, to
Finance Ltd with a view to accessing a credit line. discharge their mandates.
Corporate Governance
Strategic Alliances
12
CHAIRMAN'S STATEMENT FOR 2012CHAIRMAN'S STATEMENT FOR 2012
The Minister is currently considering the Board's The Bank recognises that its key resource is the
recommendations regarding the filling of vacant variety of skilled personnel at its disposal, and will
Board positions to ensure compliance with the IDBZ continue to provide an appropriate work
Act (Chapter 24:14). environment and compensation structure to ensure
retention and constant renewal of this key resource.
The Bank is in the process of embracing Integrated
Reporting as a business imperative. Appreciation
I wish to commend Management and Staff for the
This principle recognises that in pursuing business good financial performance.
to attain financial sustainability, the Bank has an
obligation to ensure that its business strategies do I also wish to place on record my appreciation to our
not harm the environment and are supportive of valued customers, suppliers and other stakeholders
Communities rights to benefit from developments who have made the Bank their preferred business
taking place within their space. partner.
Outlook Together we can achieve more for our Stakeholders
Whilst continuing to support economic recovery and the Communities in which we operate in. I am
across all sectors of the economy, the Bank will positive that our mutually beneficial relationships
increase its focus and resource allocation towards will continue to grow from strength to strength.
the key mandate of infrastructure development by
leveraging on its key competencies in advisory I would also like to thank my colleagues on the Board
service and project management. for their wise counsel and judicious stewardship of
the Bank's affairs.
Through Public Private Partnerships, the Bank will
also seek to provide innovative solutions to public They have been a source of inspiration and strength.
needs in housing, sanitation and transport.
On behalf of the Board, Management and Staff, I
Support for the resurgent agriculture sector will also wish to extend my appreciation to the Shareholders,
increase, commensurate with the sector's projected especially Government of Zimbabwe as the major
contribution to GDP. shareholder, for their continued support in the face
of economic challenges exacerbated by the global
In undertaking its assigned roles in the various financial crisis.
projects and programmes, the Bank will be guided by
the principle of financial sustainability and
maximisation of economic and social impacts.
The Bank expects to record a modest profit for the
year 2013, in line with its strategy of growing W L Manungo
Introduction February 2012. On a positive note, tobacco output, The Bank's financial at 144.5million kilogrammes in 2012, exceeded the results for the year initial projection of 130 million kilograms while e n d e d 3 1 cotton production amounted to 350 000 tonnes, December 2012 well above the initial projection of 130 000 tonnes.were once again
commendable even In the mining sector, which hitherto has been the
as the d i f f icu l t most dynamic sector of the Zimbabwean economy
o p e r a t i n g on the back of strong external demand, mineral
e n v i r o n m e n t production was below target in 2012, due to
c o n t i n u e d t o softening international mineral prices. Consequently,
constrain and stifle the capacity of the IDBZ to the volume of mining output declined for most key
realize its true potential. However, the performance minerals, with the exception of gold. The mining
was weighed down by the non performing US$37.5 sector is estimated to have declined from 43.2% in
million legacy foreign debt in terms of interest and 2011 to 10.1% in 2012. An anticipated recovery in
penalty charges. On a positive note the Bank mineral prices coupled with on-going investments in
benefitted from a stronger United States Dollar since the mining sector is expected to boost growth in the
the legacy debt is largely denominated in the EURO. sector to 17.1% in 2013.
The Bank though will continue to be exposed to the The manufacturing sector continued to battle against interest rate and exchange rate risk arising from the the headwinds of obsolete machinery, power legacy foreign debt making it imperative that the outages, low investment, high input costs, the processes currently under way to hive off the foreign unavailability and high cost of finance, competition debt from the IDBZ books are expedited and from imports and a general lack of business concluded in the current year 2013.confidence. Against this backdrop, capacity
utilisation in the sector stood at about 50% in 2012, Economic Overviewwith growth falling from 13.9% in 2011 to a subdued The Zimbabwean economy continued on the growth 2.3% in 2012. In 2013, a projected increase in lines path in 2012 and posted its fourth consecutive year of credit, implementation of the Industrial of positive economic growth since the adoption of Development Plan and an anticipated upturn in the the multicurrency framework in 2009. At an agricultural sector is expected to see the estimated 4.4%, real economic growth in 2012 was, manufacturing sector rising by up to 3%. however, much lower than initial projections of a
growth rate of 9.4% and largely reflected lower-than-The slowdown in economic activity in 2012 was also
expected performance in agriculture and mining. reflected in the tourism sector, with growth
slackening to 3.9% in 2012 compared to 4.3% in The agricultural sector, which was initially projected
2011. The tourism sector is projected to grow by 4% to grow by 11.6% in 2012, was downgraded to 4.6%
in 2013, with the co-hosting of the United Nations to reflect significant output declines in maize,
World Tourism Organisation (UNWTO) General groundnuts, wheat, sorghum and soya-beans, largely
Assembly in August 2013 expected to give the owing to late onset of the rains coupled with long dry
tourism sector a welcome boost. spells at the end of December 2011 and mid-
Prices remained low and stable during the course of Government had approved the issuance of
2012 which resulted in the year-on-year inflation Infrastructure Development Bonds or the “Bonds”
closing the year at 2.9% in December 2012, down by the Infrastructure Development Bank of
from 4.9% in December 2011. This compares Zimbabwe. An amount of $50 million was
favourably with an average end-of-period inflation authorized to be issued in 2012.
rate of 7.9% for Sub-Saharan Africa in 2012. Factors
which contributed to the stability of prices in 2012 Pursuant to the above objective, the Bank launched
included improvements in the supply of goods and its maiden bond issue and the first significant debt
services, tight liquidity conditions, intense market instrument backed by the Government of Zimbabwe
competition and the weakening of the South African since dollarization. The offer was open for one
Rand vis-à-vis the United States Dollar. The outlook month, a period which Management learnt was not
for inflation remains positive, with annual inflation enough for institutional investors to unwind their
expected to remain below 5% in 2013 on the back of positions in the illiquid property and stock market. A
stable international oil prices and improved domestic month was also not sufficient for investors who
capacity utilization, among other factors. needed time to analyze, recommend and take their
investment proposal through various approval
processes. In addition, most decision makers were The banking sector continued to grow in 2012 as winding up or had had an early break for the festive reflected by a 25.4% increase in total banking sector season. The results of the issue were as follows:deposits (adjusted for inter-bank deposits) from
US$3.1 billion in 2011 to US$3.9 billion in 2012.
The maturity structure of bank deposits has however
remained unchanged, with short-term deposits
accounting for 82% of the total deposits.
On the budgetary front, the sub-par performance of
the economy during the course of 2012 led to a
downward revision of the 2012 budget from the
original US$4 billion to US$3.640 billion in the The entire $17.8 million came from institutional Mid-Year Fiscal Policy Review announced in July investors mainly pension funds and fund 2012. The actual outturn of the budget was however management companies. below the revised estimates mainly due to
underperformance in non-tax revenue, particularly Reflecting the relative attractiveness of the diamond revenue. Cumulative revenue collections instrument, the balance of $12.2 million which in 2012 amounted to US$3.495 billion, about 4% remained unsubscribed when the issue closed has below the revised target of US$3.640, while since been taken up through private placement expenditures amounted to US$3.568 billion, arrangement.resulting in a budget deficit of US$72.5 million.
Riding on the relative success of the bond as a $30 Million Infrastructure Bondfinancing instrument, Government has further
mandated the IDBZ to raise upwards of $120 In a press statement on 25 January 2012, the
million in infrastructure bonds in the year 2013. The Honorable Minister of Finance announced that
$30 Million Infrastructure Bond
Details
Amount on offer-US$ 30,000,000
Number of applications received 54
Value of applications received-US$ 17,824,000
Value of bonds allotted-US$ 17,824,000
Value of bonds remaining not allotted-US$ 12,176,000
bonds will be backed by key infrastructure projects in through a debt to equity conversion involving an the energy, housing and information communicati- amount owed to IDBZ by Government. This ons technology sectors.
Pursuant to its mandate of mobilizing resources for
Operations Reviewinvestment in the key economic sectors of the
The Bank committed significant resources in economy, the Bank opened negotiations with a supporting corporate entities with working capital number of regional and international development for short periods consistent with the short term finance institutions for lines of credit and/or off-
nature of the available funding. The Bank also balance sheet co-financing arrangements of projects
in both the public and private sectors. These increased support to agriculture, an economically negotiations which are expected to be concluded in strategic sector that is expected to contribute the current year, will provide the IDBZ with the much
significantly to economic growth. In the absence of needed financial wherewithal to underwrite
long term funding, the Group's activities in significant levels of business in the key sectors of the
infrastructure related projects largely focused on economy.project management and advisory services.
The Bank concluded and signed a US$30 million Private Sector Projectsline of credit agreement with China Development The Private Sector Projects Division is at the centre Bank (“CDB”) in November 2011. Following the of the Bank's short and medium term business and removal of the Bank from the OFAC sanctions list caters for the financial needs of the corporate sector draw down on the facility is now expected in the by availing short to medium term loan facilities to current year 2013. companies for their working capital and capital
expenditure requirements. The division houses the The Zimbabwe Economic Trade and Revival Fund Corporate Banking Unit, the International Banking (“ZETRF”) facility, from which the Bank was Unit and the Agri-business Unit. allocated $10 million, could not be fully utilized in
2012. An amount of US$3 million has since been i. Corporate Bankingutilized and the balance is expected to be fully drawn
There was a significant improvement in the down in the current year. The IDBZ expects to also liquidity situation in 2012 compared to the benefit from the second round of the ZETRF facility previous year. As a result the Bank witnessed an when it is launched.increase in the uptake of facilities. The Bank,
however, tightened lending requirements as a The Bank currently warehouses Government 4.5% strategy to reduce potential defaults.shareholding in Norsad Finance Limited, a Botswana
based financial institution. The Bank is negotiating During the period under review, approved loan
with the Ministry of Finance to aquire these shares facilities stood at US$84 million whilst utilization
corporate governance and ethical practices for Secretary is available to give advice to the Board and,
observance by the IDBZ directors, management and as custodian of corporate information and records of
staff. At the first board meeting of the year, each the Group, to give access to relevant information,
director is required to declare any interest he/she documents and records regarding the operations of
may, directly or indirectly, have in the business of the the IDBZ. With appropriate clearance from the
IDBZ. A director is duty bound to recuse him/herself Board Chairman, any of the Board members has a
whenever an issue comes up for deliberation by the right to seek and obtain, at the Group's cost,
board in which the director has a direct or indirect independent expert and/or professional advice on
interest. any subject or aspect relating to the business
operations of the IDBZ.
To effectively discharge its oversight and stewardship
over the business operations of the Group, the Board Board Remuneration
meets regularly and at least once every quarter to The remuneration of the Board is determined on conduct business, particularly to review, consider basis of market surveys of similar institutions and and approve the Group's financial performance, the
recommended for approval by the Minister of state and management of its financial affairs through
Finance. The remuneration takes into account the budgetary processes, adherence to international
time and effort the board members are expected to accounting standards and practices; lending and risk devote to the affairs of the IDBZ and must be within management policies; resource allocation and the institution's capacity to pay. utilization; the engagement and supervision of
executive management and implementation of high
level corporate and business strategy towards the Board Committeesachievement of the Group's overall goals and For the effective discharge of its functions and in objectives. For effectiveness and better exercise of its
order to enhance oversight on the various areas of functions, the Board has constituted Board
the Group's operations, the Board constituted and Committees to which it delegates some of its
appointed five (5) Committees which operate under functions, duties and responsibilities. These powers clearly defined areas of responsibility and terms of and functions can also be delegated to the Chief
reference. The Board Committee compositions are Executive Officer, with clear parameters and
guidance on how to exercise those delegated set out on page 5 of the annual report. functions and/or powers on behalf of the Board. The
Board Committees operate under precise terms of In the discharge of their respective terms of reference that are regularly reviewed to ensure they reference, the Board Committees ensure remain relevant and in sync with the Bank's strategic transparency, full reporting and disclosure of key objectives. decisions and recommendation of the Committees to
the main Board. Members of the Board Committees In order to support the Board in exercising its are able to seek independent professional advice functions and responsibilities, the office of the Bank when required subject to the consent of the Board Secretary serves as the coordinating interface Chairman. The Board has power to appoint to a between the Management, the Board, Board Board Committee any person(s) for their skill and/or Committees and Shareholders of the Bank. The Bank expertise as professionals to become Committee
Members even though such persons or professionals accordance with applicable International are not themselves directors of IDBZ. This provision, Accounting Standards;which is entrenched in the Act, is intended to
· to consider and/or review reasons for major enhance the effectiveness of Board Committee
year- on-year financial fluctuations in the functions, particularly in areas requiring certain
Group's accountsexpertise, technical and professional input. · to evaluate the effectiveness of management
information systems and internal controls;The respective terms of reference for the IDBZ's · to review, for adequacy, and approve the internal Board Committees are set out below:
auditors' annual audit programmes and monitor
Investment Committee the independence and effectiveness of the
Chaired by a non-executive director, the Investment internal audit function;
Committee is made up of all members of the Board · to review and approve audit programmes for the
and the Committee's main functions are to: external auditor and monitor the effectiveness of · consider and approve credit applications from the external audit function;
the Group's business units within set approval · to recommend the appointment or discharge of
limits;the Group's external auditor including the terms · de te rm ine the fo rm and va lue o f of engagement and remuneration for the collateral/security to be taken against loan auditors; and,exposures;
· to ensure effective and smooth cooperation · consider and approve all equity investment
proposals or applications; and, between internal audit, risk management and · assess and review from time to time the compliance functions of the Group.
soundness and appropriateness of the Group's
strategy for growing the loan book and the Corporate Governance Committee overall business portfolio. This Committee is at the centre of the Board's
emphasis on good corporate governance standards Audit Committee and practices; its terms of reference are as follows: The Audit Committee is chaired by a non-executive
director and is made up of four (4) members, · to render assistance to the Board in the including the Committee Chairman. All members of fulfillment of its oversight responsibilities the Committee are non-executive members; one regarding the effectiveness of the Group's member is not a director of the IDBZ and was corporate governance structures, practices and appointed for his skill and experience in finance and procedures;audit. He is a chartered accountant by profession. · to develop and recommend to the full Board a The Committee's terms of reference are: set of corporate governance principles for
adoption by the IDBZ from time to time in line
with developments in international best · to ensure financial statements are prepared in practice;compliance with the enabling Act and in
Board Oversight Risk SpectrumThe Board has the main responsibility for establishing The principal risks to which the Group is exposed are the Bank's risk appetite. This is carried out through the classified as follows;following broad guidelines:
· providing strategic direction towards risk Credit Riskmanagement; and, Credit risk is the risk of financial loss to the Group which
· constantly monitoring the Bank's risk would arise if a customer or counterparty to a financial management strategy. instrument fails to meet its contractual obligations and it
arises principally from the Group’s loans and advances to IDBZ Risk Management Approach customers and other banks.Risk management at IDBZ is undertaken on an integrated
basis bank-wide so as ensure adequate reflection of risk Credit risk is managed by a comprehensive system of interactions in all business activities of the Group. While credit analysis, limit setting, credit approval, credit the overall responsibility of risk management lies with the monitoring and review, and credit loss control. The Board, it is the duty of senior management to transform Group’s Lending Policy, which is subject to continuous the strategic direction set by the board in the shape of review, regulates the granting of all credit facilities and policies and procedures and institute an effective aspects of credit risk management. Credit analysis hierarchy to execute and implement those policies. To involves an assessment of the risk profile of the customer. ensure that the policies are consistent with the risk It involves an evaluation of the following;tolerances of the Group the policies are approved by the · evaluation of the borrower's industry, and macro Board. economic factors;
· purpose of credit and source of repayment;
The aggregation of the Group's risk profile is carried out · track record or repayment history of borrower;
centrally by the Bank’s Risk Management and Compliance · repayment capacity of the borrower;
Unit at an enterprise-wide level while the different · the proposed terms and conditions and covenants;
business units are responsible for the identification, · adequacy and enforceability of collaterals; and
measurement and reporting of the risk areas. · approval from appropriate authority.
The Group has in place a Board-approved Enterprise- Credit management process
Wide Risk Management (“EWRM”) framework which In order to maintain credit discipline; credit policy
guides and informs all Group activities, processes, formulation, credit limit setting, monitoring of credit
procedures, systems and policies. The Group’s facilities and review of credit facilities are functions that
enterprise-wide risk management provides enhanced are performed by a unit independent of the loan
capability to: origination function. The lending units are responsible for
· Align risk appetite and strategy; marketing, credit transaction initiation and credit
· Link growth, risk and return; appraisal. The Risk Management and Compliance Unit
· Enhance risk response decisions ; does independent credit risk review of the application and
· Minimize operational surprises and losses; produces an independent report. The risk review process
· Identify and manage cross enterprise risks; focuses on applicant’s creditworthiness and compliance
· Provide integrated responses to multiple risks; with policies on credit rat ing, credit r isk
· Seize opportunities; appetite/tolerance and obligor and sector limits,
· Rationalise capital; collateral, and risk pricing among others.
Board Oversight Risk Spectrum
Credit Risk
IDBZ Risk Management Approach
Credit management process
RISK MANAGEMENT REPORTRISK MANAGEMENT REPORT
30
IDBZ's credit policy provides guidelines on the following · Ability to liquidate market positions.
issues:
· Loan credit evaluation or appraisal process; The main sources of funding for the Group are various
· Credit approval authority at various hierarchy money market and capital instruments. Short - term
instruments include loans and credit lines, inter-bank levels including authority for approving
loans, and the possibility to liquidate short-term exceptions;positions in treasury securities, as well as clients' · Risk identification, measurement, monitoring and deposits. Long-term funding consists of shareholders'
control;equity. A Liquidity Contingency Plan is in place to ensure
· Risk acceptance criteria;efficient management of stress liquidity situations should
· Credit origination and credit administration and they arise.
loan documentation procedures;
· Roles and responsibilities of units/staff involved in Market Risk
origination and management of credit;Market risk is the risk that the Group`s earnings or capital
· Guidelines on managing problem loans;or its ability to meet business objectives will be adversely
affected by changes in the level of volatility of market Continuous monitoring of outstanding facilities is carried
prices such as interest rates, credit spreads, equity prices out by the Bank's Central Credit and Administration Unit. and foreign exchange rates.
Liquidity Risk Market risks are monitored in real time by responsible
Liquidity risk is the potential for loss to an institution Bank treasury traders/dealers and daily by Risk
arising from either its inability to meet its obligations or to Management responsible for reporting regularly to the
fund increases in assets as they fall due without incurring executive, MALCO, Risk Management Committee and
unacceptable cost or losses. Audit Committee meetings.
The responsibility for managing the overall liquidity of the Operational Risk
Bank rests with the Management Asset and Liability Operational risk is the direct or indirect loss arising from
Committee (“MALCO”). The committee is comprised of a variety of causes associated with the Group`s
senior management, the treasury function and the risk processes, personnel, technology and infrastructure and
management department. The MALCO is responsible for from external factors other than credit, market and
assigning adequate allocations of assets and liabilities liquidity risks. Operational risks arise from all the
and planning the Bank's long-term liquidity profile. The Group`s operations and are faced by all sections of the
day-to-day management of the Bank's liquidity position is Group.
undertaken by the Treasury Unit. IDBZ's liquidity
strategy also incorporates support to other units in areas In order to effectively manage operational risks the
of liquidity and capital management. IDBZ's liquidity is Group has adopted the use of an automated operational
affected by the following factors: risk system called CURA. This is an operational risk
solution which is designed to encourage and sustain a
· Need to fulfill clients' short-term demands on risk aware culture. Each department has a risk champion
cash and marketable securities; responsible for identifying risk areas and capturing risk
· Asset growth funded by volatile large deposits; events in the system as they occur. The solution
and, encompasses all the key recommendations an
Market Risk
Liquidity Risk
Operational Risk
RISK MANAGEMENT REPORTRISK MANAGEMENT REPORT
31
organization must adopt to effectively manage Strategic Risk
operational risks as it is aligned to the Group's Strategic risk is the risk of an unattractive or adverse Operational Risk Framework and other popular
impact on capital and earnings due to business policy frameworks such as ISO31000, COSO, Basel II, etc. The
decisions (made or not made), changes in the economic operational risk framework includes strategies articulated
environment, deficient or insufficient implementation of in concise operational risk policies, an operational risk decisions, or a failure to adapt to changes in the governance structure, operational risk monitoring, loss
environment.recording, escalation processes and risk reporting
structure.The Board is ultimately responsible for the development,
approval and application of the Group’s strategic risk Project Risk
principles. The Board approves the Group's strategy, This is the collection of threats to the management of the
whilst management is responsible for implementation project and hence to the achievement of the project's end
and ensuring regular reviews are done in line with results within cost and time. This represents all types of
changes in operating conditions.project failures, e.g. financial technical, environmental,
etc, all of which could not only have a financial impact for
Reputation Risk the IDBZ but could also expose the Group to
Reputation risk results from damage to the Group's image impaired/tarnished reputation.
which may impair its ability to retain and generate The Group has in place a system to minimize project risk
business. Such damage may result from a breakdown of by ensuring that:
trust, confidence or business relationships. Safeguarding · Management of risks is an essential contribution
the bank`s reputation is of paramount importance to its to the achievement of business objectives;
continued success and is the responsibility of each staff
· Risk management systems: This grouping sets out member.
principles related to the design, development and
management of systems, which will provide IDBZ uses a multi-pronged strategy to manage
reliable information for risk management operational risk, with the public relations and corporate
purposes; communications department as the champion. The
Group employs corporate governance best practices and · Risk management policies and the benefits of
adheres to the values of professionalism, integrity, ethics, effective risk management are clearly
transparency and accountability in the market place, the communicated to all staff;
workplace and the community at large.· A consistent approach to risk management is fully
embedded in the project management processes;
Legal and Compliance Risk· The Board supports and promotes risk
This is the risk that arises due to the Group’s failure to management, understands and accepts the time
adhere to legal and regulatory obligations thereby a n d r e s o u rc e i m p l i c a t i o n s o f a n y affecting its ability to retain and generate business. It countermeasures; could arise from environmental, social, regulatory or
operational risk factors.
Strategic Risk
Project Risk
Reputation Risk
Legal and Compliance Risk
RISK MANAGEMENT REPORTRISK MANAGEMENT REPORT
32
The Group manages this risk through a dedicated legal
services and advisory department which, together with
the Risk Management and Compliance unit, identifies,
assesses and monitors the Group's exposure to legal and
compliance risk in its business activities, products,
processes, systems and practices.
Takaidza Mabuto
Head Risk and Compliance
RISK MANAGEMENT REPORTRISK MANAGEMENT REPORT
33
Business of the IDBZ Group Manellie Investments (Private) Limited - 100%The Group is involved in the provision of Norton Medical Investments infrastructure financing and resource mobilization. It (Private) Limited - 60%also provides short and medium term loan products Poundstone Investments and advisory services to complement its core (Private) Limited - 100%mandate. Chengetedzai Depository Company
Limited - 10%General Policy Directions of the Minister Africom Continental (Private) Limited - 33.31%In terms of Section 9A(1) of the Act, the Minister of Finance may give the Board general directions The Bank acquired a 10% equity stake in regarding the policy it is to observe in the exercise of Chengetedzai Depository Company Limited its functions, and the Board shall take all necessary (“CDC”), a company incorporated in 2010 with the steps to comply with every such direction. objective of providing a central securities depository
service for the country. Together with three other Section 9A(3) requires the Board to set out in its quasi-government institutions, the four institutions annual report, the terms of every direction given to it hold 51% shareholding in the company.in terms of this provision by the Minister and any
views or comments the Board expressed on such Financial results for the yeardirection. The results for the year are fully dealt with in the
financial statements forming part of the Annual During the period under review there were no Report. general directions of a policy nature given to IDBZ
by the Minister. Dividends
The Directors propose a dividend of US$0.21 per Authorized and Issued Share Capital share on the ordinary shares for the year ended 31 The authorized share capital of the Bank remained at December 2012.15,000,000 ordinary shares with a nominal value of
US$0.01 each. The issued ordinary share capital Corporate Governance and Performance remained at 2,331,114 ordinary shares. Monitoring System
The Bank fully complied with the corporate Preference Shares governance and performance monitoring system The Board may authorise the issuance of preference established by Government for implementation by shares as and when it is deemed necessary and State Enterprises and Parastatals (“SEPs”). The expedient pursuant to the Group’s recapitalization. framework requires these entities to submit half During the year under review the Group did not yearly reports to Government through their parent issue any preference shares. Ministries. Furthermore the Bank is in the process of
aligning its performance reporting system with the Investments Results Based Performance Management System As at the year end, the Group had the following that government requires SEPs to comply with.sizeable investments:
Going concernZimbabwe Development Fund Trust - 100% The financial statements have been prepared using Waneka Investments (Private) Limited - 70%
Business of the IDBZ Group
General Policy Directions of the Minister
Financial results for the year
Dividends
Authorized and Issued Share Capital
Corporate Governance and Performance
Monitoring System
Preference Shares
Investments
Going concern
DIRECTORS' REPORTDIRECTORS' REPORT
34
appropriate accounting policies, supported by the Board composition to comply with section 4(2)
reasonable and prudent judgments and estimates. of the Infrastructure Development Bank of
The Group carries in its books a foreign debt Zimbabwe Act (Chapter 24:14).
amounting to US$37.5million arising from lines of
credit availed to the predecessor organisation, the Directors' interest in Infrastructure Development
Zimbabwe Development Bank, and the proceeds of Bank of Zimbabwe
such foreign loans were used to fund export oriented During the year, no Director held either directly or
local projects which subsequently, turned into non- indirectly any interest in the share capital of the
performing assets for various reasons. These lines of Infrastructure Development Bank of Zimbabwe.
credit, which are secured by Government
guarantees, have negatively affected the financial Directors' emoluments
position of the Group. In order to strengthen Directors' emoluments are disclosed in the notes to
IDBZ's balance sheet and financial performance, the financial statements.
Government has agreed in principle to take over the
foreign debt. In that regard, the legal processes Interest of Directors and Officers
necessary to achieve that objective are currently During the financial year, no contracts were entered
under way. into in which Directors or Officers of IDBZ had an
interest which significantly affected the business of
Accordingly, and taking into account the Group's the Group.
performance in the period under review and future
business prospects presented by the scope, breadth The Directors had no interest in any third party or
and width of the IDBZ's mandate, the Directors have company responsible for managing any of the
a reasonable expectation that the Group has business activities of the IDBZ.
adequate resources to continue as a going concern
in the foreseeable future. Auditors fees
Shareholders will be asked to approve the
The Ministry of Finance has once again remuneration of the Auditors for the year ended 31
demonstrated its support to IDBZ by issuing a letter December 2012.
of comfort to support the Bank's going concern
assumption. The Directors' Report is made in accordance with a
Resolution of the Board.
Associated and subsidiary companies
Information regarding the Group's subsidiary and
associate companies is given in notes to the financial
statements.
Directorate WL Manungo C Chikaura
There were no movements on the Board of Chairman Chief Executive Officer
Directors. The Minister is considering
recommendations from the Board on regularizing 21 May 2013
Directors' interest in Infrastructure Development
Bank of Zimbabwe
Directors' emoluments
Interest of Directors and Officers
Auditors fees
Associated and subsidiary companies
Directorate
DIRECTORS' REPORTDIRECTORS' REPORT
35
The directors are responsible for the preparation and The financial statements have been prepared on the integrity of the financial statements and other going concern basis and the board has no reason to information contained in this Annual Report. believe, based on available information and cash
resources, that it is not appropriate.To enable the directors to meet these responsibilities, systems of accounting and internal The responsibility of the independent auditors is to controls are maintained that are aimed at providing report on the financial statements. Their report to reasonable assurance that assets are safeguarded the members is set out on pages 37 and 38 of this and that the risk of error, fraud or loss is controlled in annual report.a cost effective manner. The Group's internal audit function, which has unrestricted access to the audit The financial statements were approved by the Board committee regularly evaluates these systems, making of Directors on 21 May 2013 and are signed on its recommendations for improvements where behalf by the Chairman and Chief Executive Officer.necessary.
The financial statements have been prepared in compliance with International Financial Reporting Standards and the directors are of the opinion that they fairly present the results of operations for the W L Manungo C. Chikaurayear and the financial position of the Group as at 31 Chairman Chief Executive Officer December 2012
An audit involves performing procedures to obtain We have audited the consolidated financial audit evidence about the amounts and disclosures in statements of Infrastructure Development Bank of the financial statements.The procedures selected Zimbabwe and its subsidiaries (the "Group") and the depend on the auditor’s judgment, including the statement of financial position of Infrastructure assessment of the risks of material misstatement of Development Bank of Zimbabwe (the "Bank") the financial statements, whether due to fraud or standing alone, together the “financial statements" error. In making those risk assessments, the auditor which comprise the consolidated and separate considers internal control relevant to the entity’s statements of financial position as at 31December preparation and fair presentation of its financial 2012 and the consolidated statements of statements in order to design audit procedures that comprehensive income, changes in equity and cash are appropriate in the circumstances, but not for the flows for the year then ended and a summary of purpose of expressing an opinion on the effectiveness significant accounting policies and other explanatory of the entity’s internal control. An audit also includes information as set out on pages 39 to 94.evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates Directors' Responsibility for the Financial Statementsmade by management, as well as evaluating the The directors are responsible for the preparation and overall presentation of the financial statements.fair presentation of these financial statements in
accordance with International Financial Reporting We believe that the audit evidence we have obtained Standards ("IFRS") and in the manner required by the is sufficient and appropriate to provide a basis for our Infrastructure Development Bank of Zimbabwe Act audit opinion.(Chapter 24:14) and for such internal control as the
directors determine is necessary to enable Opinionpreparation of financial statements that are free from In our opinion, the financial statements present fairly, material misstatement, whether due to fraud or error.in all material respects the financial position of the Group and Bank as at 31 December 2012, and the Auditor's ResponsibilityGroup’s financial performance and its cash flows for Our responsibility is to express an opinion on these the year then ended, in accordance with International financial statements based on our audit. We Financial Reporting Standards and in the manner conducted our audit in accordance with International required by the Infrastructure Development Bank of Standards on Auditing. Those standards require that Zimbabwe Act (Chapter 24:14).we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
INDEPENDENT AUDITOR'S REPORT
INFRASTRUCTURE DEVELOPMENT BANK OF ZIMBABWE
Directors' Responsibility for the Financial Statements
Opinion
Auditor's Responsibility
37
PricewaterhouseCoopers, Building No. 4, Arundel Office Park, Norfolk Road, Mount Pleasant P O Box 453, Harare, Zimbabwe T: +263 (4) 338362-8, F: +263 (4) 338395, www.pwc.com
T I Rwodzi Senior Partner The Partnership's principal place of business is at Arundel Office Park, Norfolk Road, Mount Pleasant, Harare, Zimbabwe where a list of the Partners' names is available for inspection.
Emphasis of matter US$ 11 344 865.We draw attention to note 2.1.5 which indicates that the Group operates in an uncertain macroeconomic These conditions indicate the existence of a material environment. uncertainty which may cast significant doubt about
the Group's ability to continue as a going concern. As disclosed in note 20, the Group has shareholder Our audit opinion is not qualified in respect of this loans denominated in various foreign currencies matter.amounting to US$39 797 560 as at 31 December 2012, 80% of which are guaranteed by the Government of Zimbabwe. The majority of these loans are past due and the Group is unable to service the interest charges and to repay the capital. PricewaterhouseCoopers
Chartered Accountants (Zimbabwe)For the year ended 31 December 2012, total liabilities of the Group exceeded total assets by H arare 24 June 2013
Total equity and liabilities 111 510 275 83 455 149 111 112 926 82 570 884
These financial statements were approved by the Board of Directors and signed on their behalf by:
CONSOLIDATED BANK2012 2011 2012 2011
Note US$ US$ US$ US$ ASSETS
Total assets
Equity and liabilitiesEquity attributable to owners of theparent
Non-controlling interest in equity
Total equity
LIABILITIES
Total liabilities
Total equity and liabilities
Willard L. Manungo Charles Chikaura Kennias Kanguru(Chairman (Chief Executive Officer) (Bank Secretary)
21 May 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2012CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011 US$ US$
Note
Interest and similar income 23.1 13 513 891 14 886 407
Interest and similar expense 23.2 ( 6 547 998) ( 4 952 009)
Net interest income after impairment charge 4 868 865 4 188 925
Fee and commission income 25 2 398 819 2 874 242
Net gains/(losses) on financial assets at fair value throughprofit or loss 26 3 542 ( 4 023)
Dividend income 1 224 1 789
Other operating income 27 1 628 227 434 253
Fair value gain on investment property 28 4 264 869 1 016 750
Net foreign exchange gains 29 337 088 1 472 124
Operating expenses 30 ( 9 772 524) ( 8 570 479)
Share of loss from associates 11 ( 220 858) ( 198 890)
Profit for the year 3 509 252 1 214 691
Other comprehensive income: - -
Total comprehensive income for the year 3 509 252 1 214 691
Total comprehensive income attributable to:
Equity holders of the parent entity 3 574 289 1 232 567 Non-controlling interest ( 65 037) ( 17 876)
3 509 252 1 214 691
Earnings per share from continuing operations attributable to the equity holders of the Bank during the year (expressed in UScents per share)
Basic and diluted earnings per shareFrom profit for the year attributable to equity holders 31 153 53
2012 2011 US$ US$
Note
Interest and similar income
Net interest income
Net interest income after impairment charge
Profit for the year
Total comprehensive income for the year
Earnings per share from continuing operations attributable to the equity holders of the Bank during the year (expressed in UScents per share)
Basic and diluted earnings per share
40
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2012CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2012
Att
ribu
tabl
e to
ow
ners
of t
he p
aren
t en
tity
(Acc
umul
ated
Ord
inar
yN
onlo
sses
)/To
tal b
efor
eN
onsh
are
Shar
edi
stribu
tabl
ere
tain
edno
n-co
ntro
lling
cont
rolli
ngTo
tal
Cap
ital
prem
ium
rese
rve
("N
DR
")ea
rnin
gsin
tere
stin
tere
steq
uity
US$
U
S$
US$
U
S$
US$
U
S$
US$
Bal
ance
as
at 1
Jan
uary
2011
21 5
37
849 7
43
( 22 3
73 6
13)
874 1
89
( 20 6
28 1
44)
555 3
03
( 20 0
72 8
41)
Prof
it /(
Loss
) fo
r th
e ye
ar-
- -
1 2
32 5
67
1 2
32 5
67
( 1
7 8
76)
1 2
14 6
91
Tota
l com
preh
ensi
ve in
com
e-
- -
1 2
32 5
67
1 2
32 5
67
( 1
7 8
76)
1 2
14 6
91
Tran
sact
ions
with
ow
ners
:
Div
iden
d pa
id-
- -
( 5
00 0
00)
( 5
00 0
00)
- (
500 0
00)
Issu
e of
sha
res,
rig
hts
issu
e to
sha
reho
lder
s
1 7
74
4 9
98 2
26
- -
5 0
00 0
00
- 5
000 0
00
Bal
ance
as
at 3
1 D
ecem
ber
2011
23 3
11
5 8
47 9
69
( 22 3
73 6
13)
1 6
06 7
56
( 14 8
95 5
77)
537 4
27
( 14 3
58 1
50)
Bal
ance
as
at 1
Jan
uary
2012
23 3
11
5 8
47 9
69
( 22 3
73 6
13)
1 6
06 7
56
( 14 8
95 5
77)
537 4
27
( 14 3
58 1
50)
Prof
it /(
Loss
) fo
r th
e ye
ar-
- -
3 5
74 2
89
3 5
74 2
89
( 6
5 0
37)
3 5
09 2
52
Tota
l com
preh
ensi
ve in
com
e-
- -
3 5
74 2
89
3 5
74 2
89
( 6
5 0
37)
3 5
09 2
52
Tran
sact
ions
with
ow
ners
:
Der
ecog
nitio
n of
non
-con
trol
ling
inte
rest
s-
--
- -
4 0
11
4 0
11
Div
iden
d pa
id-
- -
( 4
99 9
78)
( 4
99 9
78)
- (
499 9
78)
Bal
ance
as
at 3
1 D
ecem
ber
2012
23 3
11
5 8
47 9
69
( 22 3
73 6
13)
4 6
81 0
67
( 11 8
21 2
66)
476 4
01
( 11 3
44 8
65)
Att
ribu
tabl
e to
ow
ners
of t
he p
aren
t en
tity
(Acc
umul
ated
Ord
inar
yN
onlo
sses
)/To
tal b
efor
eN
onsh
are
Shar
edi
stribu
tabl
ere
tain
edno
n-co
ntro
lling
cont
rolli
ngTo
tal
Cap
ital
prem
ium
rese
rve
("N
DR
")ea
rnin
gsin
tere
stin
tere
steq
uity
US$
U
S$
US$
U
S$
US$
U
S$
US$
Bal
ance
as
at 1
Jan
uary
2011
Tota
l com
preh
ensi
ve in
com
e
Tran
sact
ions
with
ow
ners
:
Bal
ance
as
at 3
1 D
ecem
ber
2011
Bal
ance
as
at 1
Jan
uary
2012
Tota
l com
preh
ensi
ve in
com
e
Tran
sact
ions
with
ow
ners
:
Bal
ance
as
at 3
1 D
ecem
ber
2012
41
2012 2011 Note US$ US$
Cash flows from operating activitiesProfit for the year 3 509 252 1 214 691
Adjustments for non-cash items:Depreciation of property and equipment 15 343 068 354 509 Amortisation of intangible assets 14 231 038 93 014 Impairment loss on loans and advances to customers 24 2 097 028 5 745 473 Net unrealised foreign exchange losses / (gains) 29 137 905 ( 711 955)Loss on disposal of property and equipment ( 38 925) - Profit on disposal of subsidiaries ( 494 061) - Fair value gain on investment property 13 ( 4 264 869) ( 1 016 750)Non-cash interest expense on foreign lines of credit 1 313 566 2 066 265 Provisions and accruals 1 065 693 985 359 Net losses on financial assets at fair value through profit or loss ( 3 542) 4 023 Share of losses from associates 11.2 220 858 198 890 Repayment of loan through encumbered assets ( 1 200 000) - Other non cash items ( 7 721) ( 65 672)
2 909 290 8 867 847
(Increase)/Decrease in loans and advances to customers ( 37 991 561) 2 537 280 (Increase)/Decrease in assets pledged as collateral ( 214 449) 2 826 374 Decrease/(increase) in trade and other receivables 275 946 ( 2 899 773)Increase in deposits from customers 10 368 132 27 039 983 (Decrease)/increase in other liabilities ( 49 107) 268 594
Net cash inflows/(outflow) from operating activities ( 24 701 749) ( 38 614 305)
Cash flows from investing activitiesPurchase of property and equipment 15 ( 359 159) ( 687 667)Proceeds from sale of property and equipment 38 925 - Purchase of interests in associates ( 1 050 000) - Sale of interest in a subsidiary to non-controlling interest 687 831 - Purchase of available for sale financial assets ( 173 156) - Purchase of intangible assets 14 ( 189 454) ( 435 636)Proceeds from sale of investment property 252 100 -
Net cash (outflow)/ inflow from investing activities ( 792 913 ) ( 1 123 303)
Cash flows from financing activitiesPayment of dividends ( 499 978) ( 500 000)Repayment of foreign lines of credit ( 1 200 000) -Increase in foreign lines of credit 2 253 292 - Increase/(decrease) in bonds and local lines of credit 12 089 573 ( 72 315 435)Issue of shares 17 - 5 000 000
Net cash generated from financing activities 12 642 887 ( 67 815 435)
Net increase in cash and cash equivalents ( 12 851 775) ( 30 298 433)
Cash and cash equivalents at the beginning of year 23 748 808 54 047 241
Cash and cash equivalents at the end of year 6 10 897 032 23 748 808
2012 2011 Note US$ US$
Cash flows from operating activities
Adjustments for non-cash items:
Net cash inflows/(outflow) from operating activities
Cash flows from investing activities
Net cash (outflow)/ inflow from investing activities
Cash flows from financing activities
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the end of year
CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2012CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2012
42
1 COMPANY AND GROUP PROFILE AND PRINCIPAL ACTIVITIES
The Infrastructure Development Bank of Zimbabwe ("IDBZ" or the "Bank") is a development financial institution which is incorporated and domiciled in Zimbabwe under the IDBZ Act, (Chapter 24:14), The address of the Bank's registered office is IDBZ House, 99 Rotten Row, Harare, Zimbabwe. IDBZ and its subsidiaries, (together the "Group") are primarily involved in mobilising and providing finance for infrastructure development activities and management of infrastructure development projects.
The consolidated financial statements were approved by the Board of directors on 21 May 2013.
2 SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation and presentationThe Group’s financial statements have been prepared in accordance with International Financial Reporting Standards, ("IFRS") and International Financial Reporting Committee ("IFRIC") Interpretations and in the manner required by the Infrastructure Development Bank of Zimbabwe Act, (Chapter 24:14). The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss, investment property and non-current assets held for sale.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.26.
2.1.1 New standards, amendments and interpretations, effective on or after 1 January 2012The following new standards, amendments and interpretations are effective for accounting periods beginning on or after 1 January 2012 and are relevant to the Group.
Amendments to IAS 1, ‘Presentation of Financial Statements’, on presentation of items of OCI The IASB has issued an amendment to IAS 1, ‘Presentation of financial statements’. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive
1 COMPANY AND GROUP PROFILE AND PRINCIPAL ACTIVITIES
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation and presentation
2.1.1 New standards, amendments and interpretations, effective on or after 1 January 2012
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
IAS 1 (amendment) ‘Presentation of financial statements’,on presentation of items of OCI 1 January 2012
IFRS 1 (amendment) ‘First time adoption’ on fixed dates and hyperinflation. 1 July 2011
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The amendment does not have a material impact on the Group's financial statements.
Amendments to IFRS 1, 'First time adoption' on hyperinflation and fixed dates. The first amendment replaces references to a fixed date of 1 January 2004 with "the date of transition to IFRSs". The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. The early adoption and application of the IFRS1 amendment, allowed the Group whose functional currency, the Zimbabwe Dollar was subjected to severe hyperinflation, and ceased to be subjected to severe hyperinflation, on 1 January 2009 when it changed to the US$, to achieve compliance with IFRS for the year ended 31 December 2009
The following new standards, amendments and interpretations are effective for accounting periods beginning on or after 1 January 2012 and are not relevant to the Group:
Amendment to IAS 12,'Income taxes' on deferred tax. Currently IAS 12, 'Income taxes', requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 Investment Property. Hence this amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, 'Income taxes- recovery of revalued non-depreciable assets', would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is accordingly withdrawn.
2.1.3 New standards, amendments and interpretations, effective for accounting periods beginning after 1 January 2012, and not early adopted.
The following new standards, amendments and interpretations have been issued but are not yet effective and are relevant to the Group's operations:
2.1.3 New standards, amendments and interpretations, effective for accounting periods beginning after 1 January 2012, and not early adopted.
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
IAS 12 (amendment) Income taxes’ on deferred tax 1 January 2012
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
IAS 19, ‘Employee benefits’. The amendment makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits.
IAS 27 (revised 2011) 'Separate financial statements'. This standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.
IAS 28, (revised 2011) 'Associates and joint ventures'. This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.
IAS 32, ‘Financial instruments: Presentation’. The IASB has issued amendments to the application guidance that clarifies some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. However, the clarified offsetting requirements for amounts presented in the statement of financial position continue to be different from US GAAP.
IFRS 9, 'Financial instruments (2009)'. This IFRS is part of the IASB’s project to replace IAS 39. IFRS 9 addresses classification and measurement of financial assets and replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value.
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
IAS 19 Employee Benefits 1 January 2013
IAS 27 (amendment) Separate financial statements 1 January 2013
IAS 28 (amendment) Associates and joint ventures 1 January 2013
IAS 32 (amendment) Financial Instruments: Presentation 1 January 2014
IFRS 9 (2009) (amendment) Financial instruments 1 January 2013
IFRS 9 (2010) (amendment) Financial instruments 1 January 2013
IFRS 9 (2011) (amendment) Financial instruments 1 January 2015
IFRS 10 (new) Consolidated financial statements 1 January 2013
IFRS 12 (new) Disclosures of interests in other entities 1 January 2013
IFRS 13 (new) Fair value measurement 1 January 2013
Annual improvements Improvements to various international Financial Reporting Standards 1 January 2013
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
IFRS 9, 'Financial Instruments (2010)'. The IASB has updated IFRS 9, ‘Financial instruments’ to include guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognising financial instruments has been relocated from IAS 39, ‘Financial instruments: Recognition and measurement’, without change, except for financial liabilities that are designated at fair value through profit or loss.
IFRS 9, 'Financial Instruments (2011)'. The IASB has published an amendment to IFRS 9, ‘Financial instruments’, that delays the effective date to annual periods beginning on or after 1 January 2015. The original effective date was for annual periods beginning on or after from 1 January 2013. This amendment is a result of the board extending its timeline for completing the remaining phases of its project to replace IAS 39 (for example, impairment and hedge accounting) beyond June 2011, as well as the delay in the insurance project. The amendment confirms the importance of allowing entities to apply the requirements of all the phases of the project to replace IAS 39 at the same time. The requirement to restate comparatives and the disclosures required on transition have also been modified.
IFRS 10, 'Consolidated financial statements'. This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess. This new standard might impact the entities that a group consolidates as its subsidiaries.
IFRS 12, 'Disclosures of interests in other entities'. This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.
IFRS 13, 'Fair value measurement'. IFRS 13 aims to improve consistency and reduce complexity by providing This standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP.
Annual improvementsImprovements to IFRS were issued by the International Accounting Standard Board (“IASB”) to be applied for financial periods beginning on or after 1 January 2013. They contain numerous amendments to IFRS that the IASB considered non urgent but necessary. Improvements to IFRS comprise arrangements that result in accounting changes for presentation, recognition or measurement purpose as well as terminology amendments related to a variety of individual IFRS standards.
The Group is considering the implications of these new standards, amendments and interpretations, and the impact on the Group and timing of their adoption.
2.1.4 New standards, amendments and interpretations effective for accounting periods beginning after 1 January 2012
The following new standards, amendments and interpretations have been issued but are not effective and are not relevant to the Group:
Annual improvements
2.1.4 New standards, amendments and interpretations effective for accounting periods beginning after 1 January 2012
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
IAS 34 (amendment) Interim financial reporting 1 January 2012
IAS 11 (amendment) Joint arrangements 1 January 2013
IAS 16 (amendment) Property, plant and equipment 1 January 2013
Applicable forfinancial years
Standard/ beginning on/Interpretation Content after
Amendment to IAS 34, ‘Interim financial reporting’. The amendment brings IAS 34 into line with the requirements of IFRS 8, ‘Operating segments’. A measure of total assets and liabilities is required for an operating segment in interim financial statements if such information is regularly provided to the CODM and there has been a material change in those measures since the last annual financial statements.
IAS 16, Property, plant and equioment, (amendment). The amendment clarifies that spare parts and servicing equipment are classified as property, plant and equipment rather than inventory when they meet the definition of property, plant and equipment.
IFRS 11 (amendment) 'Joint arrangements'. This presents a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form.
2.1.5 Going concernThe directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the consolidated financial statements.
Note 20 indicates that the Group has foreign currency denominated shareholders loans amounting to US$37.5million as at 31 December 2012 that are overdue. These loans were advanced by foreign shareholders of the Bank who now own less 1% of the Bank's ordinary shares and these loans are guaranteed, to the extent of 80% of their stated value, by the Government of Zimbabwe, the major shareholder of the Bank. The Group is currently unable to service the interest charges on these loans or repay the principal amount.
The Ministry of Finance has issued a letter of support in which it indicates that based on its previous support, the Government of Zimbabwe is committed to support the Group by way of further capitalization should the Group be asked to repay the debt in the near future.
As at 31 December 2012 total liabilities of the Group exceeded total assets by US$11 344 863 (31 December 2011 - US$14 358 150).
These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern, without further support from its shareholders.
The Group's operations have been significantly affected and may continue to be affected by the challenging environment particularly the lack of liquidity in the Zimbabwean economy.
2.1.5 Going concern
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
The directors have also initiated motions, through the Ministry of Finance, to have the legacy debt hived off the Group’s statement of financial position through a bill of parliament and the process is at an advanced stage of engagement between the Bank and Ministry of Finance. The removal of the legacy debt will result in the Group’s total assets exceeding total liabilities.
In addition, section 32 of the Infrastructure Development Bank of Zimbabwe Act (Chapter 24:14), stipulates that the Bank cannot be wound up except by or under the authority of an Act of the Parliament of Zimbabwe.
The directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. However, the directors believe that under the current economic environment a continuous assessment of the ability of the Group to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these consolidated financial statements.
2.2 Foreign currency translation
(a) Functional and presentation currencyItems included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in the United States of America dollar ("US$"), which is the functional and presentation currency of the Bank and all its subsidiaries.
(b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.
All foreign exchange gains and losses are presented in the consolidated statement of comprehensive income within net foreign exchange gains or losses.
2.3 Consolidation
(a) SubsidiariesSubsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.
De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial
2.2 Foreign currency translation
(a) Functional and presentation currency
(b) Transactions and balances
2.3 Consolidation
(a) Subsidiaries
48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition- by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
Inter-company transactions, balances, income and expenses on transactions between Group entities are eliminated. Profits or losses resulting from transactions with Group entities that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Changes in ownership interests in subsidiaries without change of controlTransactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
(c) Disposal of subsidiariesWhen the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as
(b) Changes in ownership interests in subsidiaries without change of control
(c) Disposal of subsidiaries
49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
(d) AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.
The Group’s share of post-acquisition profit or loss is recognised in the consolidated statement of comprehensive income, and its share of post acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to ‘share of profit/ (loss) of an associate’ in the consolidated statement of comprehensive income.
Profits or losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.
Dilution gains or losses arising in investments in associates are recognised in the consolidated statement of comprehensive income.
2.4 Cash and bank balances
Cash and cash equivalents includes cash in hand, deposits held at call with other banks, and other short-term highly liquid investments with original maturities of three months or less. The Bank which was created by an Act of Parliament, The Infrastructure Development Bank of Zimbabwe Act (Chapter 24:14) is not registered under the Zimbabwe Banking Act (Chapter 24:20) and is not regulated by the Reserve Bank of Zimbabwe and has no statutory reserve balances with the Central Bank.
(d) Associates
2.4 Cash and bank balances
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2.5 Financial assets and liabilities
2.5.1 Financial assetsThe Group classifies its financial assets in the following categories at fair value through profit or loss, available for sale, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
a) Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.
b) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, and the Group does not intend to sell them immediately or in the short-term. The Group's loans and receivables comprise 'loans and advances to customers', 'assets pledged as collateral', 'trade and other receivables' and 'cash and cash equivalents' in the statement of financial position.
c) Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.
2.5.2 Financial liabilitiesThe Group's financial liabilities are measured at amortised cost. Financial liabilities measured at amortised cost include deposits from other banks or customers, lines of credit and bonds and other liabilities. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or have expired.
a) Customer depositsCustomer deposits are recognised initially at fair value, net of transaction costs incurred. Deposits are subsequently shown at amortised cost using the effective interest method. Any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of comprehensive income.
b) Lines of credit and bondsLines of credit are recognised initially at fair value, net of transaction costs incurred. Lines of credit are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred
2.5 Financial assets and liabilities
2.5.1 Financial assets
a) Financial assets at fair value through profit or loss
b) Loans and receivables
c) Available-for-sale financial assets
2.5.2 Financial liabilities
a) Customer deposits
b) Lines of credit and bonds
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
until the draw-down occurs. To the extent there is no evidence that is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
2.5.3 Recognition and measurementRegular purchases and sales of financial assets are recognised or derecognised on the trade date, the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss and financial assets available for sale are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the consolidated statement of comprehensive income in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the consolidated statement of comprehensive income when the Group's right to receive payments is established.
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.
Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the consolidated statement of comprehensive income in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the consolidated statement of comprehensive income when the Group's right to receive payments is established.
Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognised in other comprehensive income.
When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the consolidated statement of comprehensive income as 'gains or losses from investment securities'. Dividends on available-for-sale equity investments are recognised in the consolidated statement of comprehensive income as part of other income when the Group's right to receive payments is established.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little as possible on entity specific inputs.
2.5.3 Recognition and measurement
52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2.5.4 Categories of financial instruments
The Group classifies the financial instruments into classes that reflect the nature of information and take into account the characteristics of those financial instruments. The classification made can be seen in the table below:
2.5.5 Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
2.5.6 Impairment of financial assets
a) Assets carried at amortised costThe Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably measured.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, defaults or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
2.5.4 Categories of financial instruments
2.5.5 Offsetting financial instruments
2.5.6 Impairment of financial assets
a) Assets carried at amortised cost
Category (as defined by IAS 39) FinancialInstruments: Recognition and Measurement
Loans and receivables
Available for sale financial assets
Financial assets
Financial assets at fair at fair value through profit or loss
Contingent liabilities and commitments
Financial liabilities at amortised cost
Financial liabilities
Class (as determined by the Group)
the Zimbabwe Stock ExchangeBankers acceptances
Balances with other banks and cash
Unlisted equity securities
Staff loans
Subclasses '(as determined by the Group)
Loans and
advances to
customers
Loans to individuals
Loans and advances to other banks
Loans to corporate entities
Large corporate customers
SMEs
Investment securities - equity
Financial assets held for tradingEquity securities listed on
Bankers' acceptances
Loan commitments
Guarantees and letters of credit
securities
Lines of credit and bondsLarge corporate customers
SMEs
IndividualsCustomers deposits
Deposits from other banks
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated statement of comprehensive income. If a loan has a variable interest rate, the discount rate of measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instruments' fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income.
b) Assets classified as available for saleThe Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated statement of comprehensive income on equity instruments are not reversed through the consolidated statement of comprehensive income. If in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the profit or loss, the impairment loss is reversed through the statement of comprehensive income.
2.6 Income taxesAll the receipts and accruals of the Group are exempt from income tax in terms of sub paragraph of paragraph 2 of the Third Schedule of the Zimbabwe Income Tax Act (Chapter 23:06) and by virtue of the Section 10 of the Zimbabwe Capital Gains Tax Act (Chapter 23:01) from capital gains tax.
2.7 Loans and advances to customersLoans and advances to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Group does not intend to sell immediately or in the near term. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. Loans and advances are stated net of impairment losses.
Impairment allowance on loans and advances to customers Impairment losses are held in respect of loans and advances. The level of impairment is determined in accordance with the provisions set out in International Accounting Standard, ("IAS"), 39, Financial Instruments: Recognition and Measurement.
An allowance for loan impairment is established if there is objective evidence that the Group will not be
b) Assets classified as available for sale
2.6 Income taxes
2.7 Loans and advances to customers
Impairment allowance on loans and advances to customers
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
able to collect all amounts due according to the original contractual terms of the loans and advances. The amount of the allowance is the difference between the carrying amount and the recoverable amount.
The loan loss allowance also covers losses where there is objective evidence that probable losses are present in components of the loan portfolio at the statement of financial position date. These have been estimated based upon historical cost patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the related allowance for impairment. Subsequent recoveries are credited to the statement of comprehensive income.
Specific impairment for non-performing loans, covering identified impaired loans, are based on periodic evaluations of the loans and advances and take account of past loss experience, economic conditions and changes in the nature and level of risk exposure. Corporate loans are analysed on a case-by-case basis taking into account breaches of key loan conditions.
Specific impairment against loans and advances is based on an appraisal of the loan portfolio, and is made where the repayment of identified loans is in doubt. Portfolio impairment is made in relation to losses which, although not separately identified, are known from experience to exist in any loan portfolio.
Impairment loss allowances, are applied to write-off loans and advances when all security has been realised and further recoveries are considered to be unlikely. Recoveries of bad debts that would have been written off are shown as other income in the statement of comprehensive income
.Non-performing loansInterest on loans and advances is accrued until such time as reasonable doubt exists about its collectability, thereafter and until all or part of the loan is written-off, interest continues to accrue on customers’ accounts but is not included in income. Such suspended interest is deducted from loans and advances in the statement of financial position.
2.8 Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment.
2.9 Non current assets (or disposal groups) held for sale
Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
2.10 Investment propertyProperty that is held for long-term rental yields or for capital appreciation or both; and that is not occupied by the entities in the Group, is classified as investment property. Investment property also includes
Non-performing loans
2.8 Trade receivables
2.9 Non current assets (or disposal groups) held for sale
2.10 Investment property
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
property that is being constructed or developed for future use as investment property.
Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs.
After initial recognition, investment property is carried at fair value. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Group expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment until the fair value becomes reliably determinable or construction is completed – whichever is earlier. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods, such as recent prices in less active markets or discounted cash flow projections. Valuations are performed as at the statement of financial position date by independent professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued.
These valuations form the basis for the carrying amounts in the financial statements. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value.
Fair value measurement of property under construction is only applied if the fair value is considered to be reliably measurable.
It may sometimes be difficult to determine reliably the fair value of the investment property under construction. In order to evaluate whether the fair value of an investment property under construction can be determined reliably, management considers the following factors, among others:
•The provisions of the construction contract;•The stage of completion;•Whether the project/property is standard (typical for the market) or non-standard;•The level of reliability of cash inflows after completion;•Past experience with similar constructions;•The development risk specific to the construction; and•Status of construction permits.
The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are recognised as a liability including finance lease liabilities in respect of leasehold land classified as investment property; others, including contingent rent payments, are not recognised in the financial statements.
Subsequent expenditure is capitalised to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and cost of the item can be
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure other than those rational market participants would take into account when determining the value of theinvestment property.
Changes in fair value are recognised in the statement of comprehensive income. Investment property is derecognised either when it has been disposed of or when the investment property is permanently withdrawn from use and no economic benefit is expected from its disposal.
Where the Group disposes of an investment property at fair value in an arm’s length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in the statement of comprehensive income within net gain from fair value adjustment on investment property.
If an investment property becomes owner-occupied, it is reclassified as property and equipment. Its fair value at the date of reclassification becomes its cost for subsequent accounting purposes.
If an item of owner-occupied property becomes an investment property because its use has changed, any difference resulting between the carrying amount and the fair value of this item at the date of the transfer is treated in the same way as revaluation under IAS 16, 'Property, Plant and Equipment'. Any resulting increase in the carrying amount of the property is recognised in the profit or loss to the extent that it reverses a previous impairment loss, with any remaining increase recognised in other comprehensive income and increases directly to revaluation surplus within equity. Any resulting decrease in the carrying amount of the property is initially charged in other comprehensive income against any previously recognised revaluation surplus, with any remaining decrease charged to consolidated statement of comprehensive income.
2.11 Property and equipment
Recognition and measurementItems of property and equipment, are measured at historical cost less accumulated depreciation and impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, the cost of dismantling the asset and removing items and restoring site on which they are located.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.
The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group
2.11 Property and equipment
Recognition and measurement
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The cost of the day to day servicing of property and equipment is recognised in the statement of comprehensive income as incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line basis to allocate their cost to their residual values over their useful lives .
Buildings 40 yearsMotor vehicles 4 - 5 yearsOffice equipment 3 yearsFurniture and fittings 3 - 10 yearsComputer hardware 3 years
The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting date.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains or losses on disposals are determined by comparing the proceeds, with the carrying amount and are recognised in the statement of comprehensive income.
2.12 Intangible assets
Software licencesAcquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Software has a maximum expected useful life of 4 years.
AmortisationComputer software costs recognised as intangible assets are amortised on a straight-line basis over their estimated useful lives.
2.13 Impairment of non-financial assetsAssets that have an indefinite useful life - for example, intangible assets not ready to use - are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows ("cash-generating units"). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment ateach reporting date.
2.14 Share capital
Ordinary sharesOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
2.12 Intangible assets
Software licences
Amortisation
2.13 Impairment of non-financial assets
2.14 Share capital
Ordinary shares
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
shares and share options are recognised as a deduction from equity, net of tax from the proceeds.
Repurchase of share capital (treasury shares)When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, and is deducted from equity attributable to the equity holders until the shares are cancelled or reissued. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/(from) retained earnings/(accumulated losses).
2.15 ProvisionsProvisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and bonus.
2.16 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers or customers. Trade payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
2.17 Leases
Group as lessorLeases where the Group transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. The outstanding principal amounts less unearned finance charges, are included in advances to customers in the statement of financial position.
The finance charges earned are computed at the effective interest rate in the contracts and are brought into income in proportion to balances outstanding under each contract. The unearned portion of finance charges is shown as a deduction from loans and advances. The Group has no finance leases during the reporting period ended 31December 2012 (2011:US$ nil).
Group as lesseeLeases of assets under which the lessor effectively retains all the risks and rewards incidental to ownership
Repurchase of share capital (treasury shares)
2.15 Provisions
2.16 Trade payables
2.17 Leases
Group as lessor
Group as lessee
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
Payments made under operating leases are recognised in the statement of comprehensive income on a straight line basis over the term of lease.
2.18 Financial guarantees Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with
the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under
the guarantee has become probable).
2.19 Related partiesRelated party transactions and outstanding balances with key management and other entities in the Group are disclosed in note 35 to the financial statements.
2.20 Revenue recognitionRevenue is derived substantially from the business of banking, project advisory services and related activities and comprises net interest income and non-interest income. The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group; and when specific criteria have been met for each of the group activities as described below.
The Group bases its estimate of return on historical results taking into consideration the type of customer, type of transaction and the specifics of each arrangement.
2.21 Income
2.21.1 Net interestInterest income and expenses are recognised in the statement of comprehensive income for all interest-bearing instruments on an accrual basis using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial assets or liabilities to the carrying amount of the financial asset or liabilities. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.
Where financial assets have been impaired, interest income continues to be recognised on the impaired value, based on the original effective interest rate. Net interest income excludes fair value adjustments on interest-bearing financial instruments. Fair value adjustments on financial instruments are reported under other income.
2.18 Financial guarantees
2.19 Related parties
2.20 Revenue recognition
2.21 Income
2.21.1 Net interest
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
The calculation of the effective interest rate includes all fees paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition or disposal of a financial asset or liability.
2.21.2 Non-interest income Non-interest income includes advisory and arrangement fees, net revenue from foreign exchange trading and net gains on the realisation or revaluation of investment properties. All such commissions and fees including service fees, investment management fees, placement and syndication fees are recognised as the related services are performed.
2.21.3 Dividend incomeDividend income is recognised when the right to receive income is established. Usually this is at the ex-dividend date for equity securities. Dividends are reflected as a component of non-interest income based on the underlying classification of the equity instruments.
2.21.4 Rental incomeRental income from the investment property is accounted for on an accrual basis.
2.22 Employee benefits
2.22.1 Pension schemeThe Group subscribes to the Infrastructure Development Bank of Zimbabwe’s group pension scheme, a defined contribution plan. A defined contribution plan, is a plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further contributions should the fund at any time not hold sufficient assets to pay all employees the benefits relating to their service in the current and prior periods. The Group’s obligations for contributions to this group scheme are recognised as an expense in the statement of comprehensive income as they are incurred.
2.22.2 Termination benefits Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.
2.22.3 Short term employee benefitsShort term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid under short term cash bonus or profit sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
2.21.2 Non-interest income
2.21.3 Dividend income
2.21.4 Rental income
2.22 Employee benefits
2.22.1 Pension scheme
2.22.2 Termination benefits
2.22.3 Short term employee benefits
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2.23 Earnings per shareThe Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. The diluted EPS figure is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of outstanding shares for the effects of all potentially dilutive ordinary shares.
2.24 Dividend distributionDividend distribution to the Bank’s shareholders is recognised as a liability in the period in which the dividends are declared by the Bank’s directors.
2.25 Fiduciary activitiesThe Group manages, on behalf of the Ministry of Finance, loan (and collection thereof) and fiscal funding disbursements to implementing agencies for infrastructure projects.
The assets and income arising thereon are excluded from these consolidated financial statements as they are not assets of the Group.
2.26 Critical accounting estimates and judgementThe Group's financial position and its financial results are influenced by assumptions, estimates and management judgment, which necessarily have to be made in the course of the preparation of the financial statements.
The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition seldom equal the related actual results. The estimates and assumptions that have a significant risk of carrying a material adjustment to the carrying amount of assets and liabilities within the next financial year addressed below:
2.26.1 Impairment losses on loans and advancesThe Group reviews its loan portfolio to assess impairment at least monthly. In determining whether an impairment loss should be recorded in the consolidated statement of comprehensive income, the Group makes judgements as to whether there is measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. Management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. For specific impairment the expected cash flows are discounted using the original effective interest rate when the loan was granted.
2.26.2 Impairment of available-for-sale financial assetsThe Group determines that available-for-sale financial assets are impaired when there is a significant or prolonged decline in the fair value below its costs. This determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the normal volatility in share price. In addition, making this judgement, the Group evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows.
2.23 Earnings per share
2.24 Dividend distribution
2.25 Fiduciary activities
2.26 Critical accounting estimates and judgement
2.26.1 Impairment losses on loans and advances
2.26.2 Impairment of available-for-sale financial assets
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2.26.3 Going concernAfter making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the consolidated financial statements. Additional information on the going concern assumption is disclosed in note 2.1.5.
2.26.3 Going concern
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3 RISK MANAGEMENT
3.1 Risk Management PoliciesThe Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including fair value interest rate risk, cash flow interest rate risk, foreign exchange risk, and price risk).
Risk management is a key function of management. The dynamism characterising the financial services sector has increased the importance of risk management. The Group has put in place a risk management framework to identify the type and areas of risk and to measure and assess all risks to enable management to make sound judgements and decisions and thereby limit losses.
The Board of Directors has overall responsibility for setting policies for risk management. The implementation and monitoring of the risk policies is through appropriate risk management structures with delegated authority from the Board. The Bank’s Risk Management and Compliance Department independently monitors risk throughout the Group according to set risk policies and provides advice and support on compliance matters. The Group manages risk within applicable laws. Each department is responsible for ensuring that its conduct complies with all the applicable laws and regulations.
In addition, the Group Internal Audit Department is responsible for independent review of risk management and control environment; and the Group Legal Department provides advice and support on legal matters.
A Risk Management Committee has been set at Board level and it consists of non-executive directors level to ensure importance of the function is emphasized at a higher level.
3.2 Credit riskCredit risk is the possibility of loss arising from the inability of a client or a counter party to meet its commitments to the Group. It is inherent in most banking products and activities. Credit risk management and control within the Group is guided by the Group's credit policy. The credit policy outlines procedures for accurate assessment, proper approval and consistent monitoring of credit risk.
The Group manages credit exposure to any entity through credit limits. A credit limit is set for each customer after assessment of the financial strength of the customer and assessment of other qualitative factors which influence the performance of the customer. The Group has in place a management credit committee that assesses credit proposals and exercise credit approval authority, up to a set limit. Approval of credit at higher levels requires the approval of the Board.
Individual loans are reviewed continuously through monthly reassessment of the credit grading so that problems can be detected and managed at an early stage. Periodic reassessment is also done based on management information received. Impairment allowances are adjusted monthly in line with the reassessed credit grades. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. The Group monitors the credit performance of customers on the utilised balances to minimise potential losses on the unutilised balances.
3 RISK MANAGEMENT
3.1 Risk Management Policies
3.2 Credit risk
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3 RISK MANAGEMENT (continued)
3.2 Credit risk (continued)
Maximum exposure to credit risk before collateral held or other credit enhancement
Maximum MaximumExposure Exposure
31 Dec 2012 31 Dec 2011US$ US$
Credit risk exposure relating to on-balance sheet assets are as follows:Cash and cash equivalents 10 586 268 23 550 539 Loans and advances to customers 76 087 578 38 719 863 Assets pledged as collateral 11 244 420 11 029 971 Trade and other receivables 3 742 960 4 520 195
101 661 226 77 820 564
Credit risk exposure relating to off-balance sheet assets are as follows:Loan commitments (note 32) 32 460 959 19 853 248
Maximum exposure to credit risk 134 122 185 97 673 816
The increase in credit risk exposure was due to the following:(a) Infrastructure bonds loan of $17.8m created during the year, and(b) The Group increased credit limits for borrowing clients who are not highly susceptible to poor
economic performance and whose businesses could justify a higher limit.
There is no significant risk with respect to cash and cash equivalents as the Group holds bank accounts with large financial institutions with sound financial and capital cover. The fair value of cash and cash equivalents at the reporting date approximates the carrying amount.
CONSOLIDATED BANKLoans and Loans and Loans and Loans and
advances to advances to advances to advances tocustomers customers customers customers
Loans and advances (including assets 2012 2011 2012 2011
pledged as collateral are summarised as follows: US$ US$ US$ US$
Maximum exposure to credit risk before collateral held or other credit enhancement
Loans and advances (including assets pledged as collateral are summarised as follows:
Maximum MaximumExposure Exposure
31 Dec 2012 31 Dec 2011US$ US$
CONSOLIDATED BANKLoans and Loans and Loans and Loans and
advances to advances to advances to advances tocustomers customers customers customers
2012 2011 2012 2011
US$ US$ US$ US$
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3.3 Liquidity risk
Liquidity risk is the possibility that the Group may fail to cover its financial obligations as they fall due. The risk arises as a result of mismatches between the maturities of assets and liabilities.
Management manages liquidity risk through cash flow and maturity mismatch management. Management meets regularly to set and review the Group's strategies. The Bank’s treasury department has the responsibility to implement and maintain a liquidity management strategy to ensure that the Group has sufficient liquidity to meet its daily liquidity obligations.
The Group has developed a comprehensive contingency liquidity plan to ensure that the Group does not get affected in case of a major market upset.
The Group uses the following strategies in its liquidity risk management:
- Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers.
- Maintains a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;
- Monitoring the liquidity ratios of the statement of financial position against internal and regulatory requirements;
- Diversification of liabilities to achieve a stable funding base and avoid excessive reliance on any one counter party;
- Maturity mismatch limits for its cumulative funding positions; and- Access of inter-bank markets.
Sources of liquidity are regularly reviewed by a separate team in treasury to maintain a wide diversification by currency, provider, product and term.
Contract maturity analysisThe table below analysis the Group’s non directive financial liabilities and assets into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date
Up to 1 1 to 3 3 to 9 9 to 12 Over 12 month months months months months Total
Up to 1 1 to 3 3 to 9 9 to 12 Over 12 month months months months months Total
As at 31 December 2012 US$ US$ US$ US$ US$ US$
Assets
Total assets
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Up to 1 1 to 3 3 to 9 9 to 12 Over 12 month months months months months Total
Up to 1 1 to 3 3 to 9 9 to 12 Over 12 month months months months months Total
US$ US$ US$ US$ US$ US$Liabilities
Other liabilities
Total liabilities
Gap
Liabilities:
otal gap
Total cumulative gap
As at 31 December 2011
Assets
Total assets
Total liabilities
Gap
Liabilities:
Total gap
Total cumulative gap
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Interest rate risk arises due to assets and liabilities maturing at different times and thereby necessitating the rollover and re-pricing of liabilities of reinvestment and re-pricing of assets
The Group uses the following to measure interest rate risk:- Gap analysis;- Duration analysis to estimate the loss in market value of the asset portfolio if interest rates move; and- Rate sensitivity analysis involving calculation of ratios of rate sensitive assets to rate sensitive liabilities,
and net rate sensitive assets/liabilities to equity and total assets.
Exchange rate risk arises from foreign currency open positions. The Group manages the risk through limits on the total exposure and through dealer limits. The Group monitors its daily foreign currency balances against the daily single currency and overall foreign exchange risk exposure limits set by the Board
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored monthly by Management Asset Liability Committee ("MALCO").
The Group manages interest rate risk through Management Asset and Liability Committee and the strategies used include:(a) Loan pricing, promotion and product structure.(b) Deposit pricing, promotion and product structure.(c) Use of alternative funding sources, including off-balance sheet alternatives to the extent such activity
is authorised by the Board, and(d) Security purchases and sales.
3.4 Market risk
The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices.
Market risk is the possibility of loss in the realizable value of assets or increase in the value of liabilities arising from adverse movements in interest rates, foreign exchange rates and share prices.
3.4.1 Interest rate risk
3.4 Market risk
3.4.1 Interest rate risk
68
69
Interest rate repricing gap analysisInterest rate repricing gap analysis
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3.4
Mar
ket
risk
(co
ntin
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3.4
.1In
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ate
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Up
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mon
th
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S$
US$
US$
US$
US$
US$
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Ass
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Cas
h an
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ts10 8
97 0
32
- -
- -
- 1
0 8
97 0
32
Fina
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l ass
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ss6 1
98
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- -
-
6 1
98
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s an
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9 4
41 7
61
9 5
38 7
04
35 5
80 3
62
- 11 8
82 6
67
- 6
6 4
43 4
94
Ava
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173 1
56
173 1
56
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as c
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tera
l-
11 2
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20
- -
- -
11 2
44 4
20
Trad
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d ot
her
rece
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les
- -
- -
- 3
769 3
28
3 7
69 3
28
Inve
stm
ents
in a
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iate
s-
- -
- -
2 5
99 3
37
2 5
99 3
37
Inve
ntor
ies
- -
- -
- 1
85 2
49
185 2
49
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stm
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- -
- -
- 1
1 1
28 0
92
11 1
28 0
92
Inta
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- -
- -
665 6
32
665 6
32
Prop
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- -
- -
- 4
398 3
37
4 3
98 3
37
Non
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- -
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20 3
44 9
91
20 7
83 1
24
35 5
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62
- 11 8
82 6
67
22 9
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31
111 5
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75
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Dep
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57 0
70 8
17
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- -
- 5
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70 8
17
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t 3
7 5
44 2
68
- -
- 2
253 2
92
- 3
9 7
97 5
60
Loca
l lin
es o
f cre
dit
4 8
75 1
00
- -
6 0
68 2
99
11 9
67 3
10
- 22 9
10 7
08
Oth
er li
abili
ties
- -
- -
- 3
076 0
55
3 0
76 0
55
Shar
ehol
ders
' equ
ity-
- -
- -
( 11 3
44 8
65)
( 11 3
44 8
65)
Tota
l equ
ity a
nd li
abili
ties
99 4
90 1
85
- -
6 0
68 2
99
14 2
20 6
02
( 8 2
68 8
09)
111 5
10 2
75
Tota
l int
eres
t re
pric
ing
gap
( 79 1
45 1
93)
20 7
83 1
24
35 5
80 3
62
( 6 0
68 2
99)
( 2 3
37 9
35)
31 1
87 9
40
-
Tota
l cum
ulat
ive
gap
( 79 1
45 1
93)
( 58 3
62 0
69)
( 22 7
81 7
07)
( 28 8
50 0
07)
( 31 1
87 9
40)
-
-
3.4
Mar
ket
risk
(co
ntin
ued)
3.4
.1In
tere
st r
ate
risk
Inte
rest
rat
e re
pric
ing
gap
anal
ysis
Up
to 1
1 t
o 3
3 t
o 9
9 t
o 12
Ove
r 12
Non
inte
rest
As
at 3
1 D
ecem
ber
2012
mon
th
mon
ths
mon
ths
mon
ths
mon
ths
bear
ing
Tota
lU
S$
US$
US$
US$
US$
US$
US$
Ass
ets
otal
ass
ets
Liab
ilitie
s
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Inte
rest
rat
e risk
(co
ntin
ued)
Inte
rest
rat
e risk
(co
ntin
ued)
Up
to 1
Up
to 1
1
to
3
1 t
o 3
3 t
o 9
3 t
o 9
9 t
o 12
9 t
o 12
mon
thm
onth
mon
ths
mon
ths
mon
ths
mon
ths
mon
ths
mon
ths
US$
US$
US$
US$
US$
US$
US$
US$
23 7
48 8
08
- -
-
Fina
ncia
l ass
ets
at fa
ir v
alue
thr
ough
pro
fit o
r lo
ss
43 9
04
- -
-
Loan
s an
d ad
vanc
es t
o cu
stom
ers
16 2
79 1
58
12 2
69 7
68
2 0
00 0
35
-
Ass
ets
pled
ged
as c
olla
tera
l-
11 0
29 9
71
- -
Trad
e an
d ot
her
rece
ivab
les
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
Non
-cur
rent
ass
ets
held
-for
-sal
e-
- -
338 8
46
40 0
71 8
70
23 2
99 7
39
2 0
00 0
35
338 8
46
46 7
02 6
85
- -
-
- -
- -
- -
35 9
64 3
16
-
10 8
21 1
36
- -
-
- -
- -
- -
- -
93 4
88 1
37
- 1
200 0
00
1 2
00 0
00
1 2
00 0
00
Tota
l int
eres
t re
pric
ing
gap
( 53 4
16 2
67)
23 2
99 7
39
800 0
35
( 8
61 1
54)
( 53 4
16 2
67)
( 30 1
16 5
29)
( 29 3
16 4
93)
( 30 1
77 6
47)
( 30 1
77 6
47)
mon
ths
mon
ths
Ove
r 12
Ove
r 12
US$
US$ - - - - - - - - - - - - - - - - - -
Non
inte
rest
Non
inte
rest
( 14 3
58 1
50)
( 11 2
32 9
88)
17 7
44 6
59
28 9
77 6
47
( 1 2
00 0
00)
4 5
20 1
95
1 6
96 0
55
6 4
47 7
60
4 1
23 8
30
3 1
25 1
62
249 9
41
706 8
78
bear
ing
bear
ing
US$
US$ - - - - - - - -
Mar
ket
risk
(co
ntin
ued)
Mar
ket
risk
(co
ntin
ued)
As
at 3
1 D
ecem
ber
2011
As
at 3
1 D
ecem
ber
2011
Ass
ets
Ass
ets
Cas
h an
d ca
sh e
quiv
alen
ts
Inve
stm
ents
in a
ssoc
iate
s
Inve
ntor
ies
Inve
stm
ent
prop
erty
Inta
ngib
le a
sset
s
Prop
erty
and
equ
ipm
ent
Tota
l ass
ets
Tota
l ass
ets
Liab
ilitie
sLi
abili
ties
Dep
osits
from
cus
tom
ers
Fore
ign
lines
of c
redi
t
Loca
l lin
es o
f cre
dit
Oth
er li
abili
ties
Shar
ehol
ders
' equ
ity
Tota
l equ
ity a
nd li
abili
ties
Tota
l equ
ity a
nd li
abili
ties
Tota
l cum
ulat
ive
gap
Tota
l cum
ulat
ive
gap
3.4
3.4
3.4
.13.4
.1
Tota
lTo
tal
US$
US$
23 7
48 8
08
43 9
04
30 5
48 9
61
11 0
29 9
71
4 5
20 1
95
1 6
96 0
55
249 9
41
6 4
47 7
60
706 8
78
4 1
23 8
30
338 8
46
83 4
55 1
49
46 7
02 6
85
37 1
64 3
16
10 8
21 1
36
3 1
25 1
62
( 14 3
58 1
50)
84 6
55 1
49
( 1 2
00 0
00) -
71
Interest rate repricing gap analysisInterest rate repricing gap analysis
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3.4
Mar
ket
risk
(co
ntin
ued)
3.4
.2In
tere
st r
isk
sens
itivi
ty a
naly
sis
The
tab
le b
elow
indi
cate
s th
e se
nsiti
vity
to
a re
ason
able
pos
sibl
e ch
ange
in in
tere
st r
ates
, w
ith a
ll ot
her
variab
les
held
con
stan
t, a
nd t
he im
pact
on
the
Gro
up’s
sta
tem
ent
ofco
mpr
ehen
sive
inco
me.
The
rat
es u
sed
for
the
sens
itivi
ty a
re a
ppro
ved
by t
he M
ALC
O c
omm
ittee
.
Inte
rest
rat
e ch
ange
Effe
ct o
n pr
ofit
Effe
ct o
n pr
ofit
befo
re in
com
ebe
fore
inco
me
tax
tax
2012
2011
US$
U
S$
5%
incr
ease
/ (
decr
ease
)675 6
95
494 3
48
10%
incr
ease
/ (
decr
ease
) 1
351 3
89
988 6
95
3.4
.2.F
orei
gn e
xcha
nge
risk
The
Gro
up is
exp
osed
to
the
effe
cts
of fl
uctu
atio
ns in
the
pre
vaili
ng fo
reig
n cu
rren
cy e
xcha
nge
rate
s on
its
finan
cial
pos
ition
and
cas
h flo
ws.
The
Boa
rd s
ets
limits
on
the
leve
l of
expo
sure
by
curr
ency
and
in a
ggre
gate
for
both
ove
rnig
ht a
nd in
tra-
day
posi
tions
, w
hich
are
mon
itore
d da
ily.
The
tab
le b
elow
sum
mar
ises
the
Gro
up’s
exp
osur
e to
fore
ign
curr
ency
exc
hang
e ra
te r
isk
as a
t 31 D
ecem
ber.
Con
cent
ratio
ns o
f cur
renc
y risk
- o
n -
off b
alan
ce s
heet
fina
ncia
l ins
trum
ents
as
at 3
1 D
ecem
ber
was
as
follo
ws:
As
at 3
1 D
ecem
ber
2012
ZA
RB
WP
GB
PEu
roO
ther
US$
US$
US$
US$
US$
Tota
lU
S$eq
uiva
lent
equi
vale
nteq
uiva
lent
equi
vale
nteq
uiva
lent
US$
Ass
ets
Bal
ance
s w
ith b
anks
and
cas
h10 7
32 2
00
23 4
19
10 0
75
2 8
94
115 8
43
12 6
00
10 8
97 0
32
Fina
ncia
l ass
ets
at fa
ir v
alue
thr
ough
pro
fit o
r lo
ss 6
198
-
-
-
-
-
6 1
98
Loan
s an
d ad
vanc
es
66 4
43 4
94
-
-
-
-66 4
43 4
94
Ava
ilabl
e fo
r sa
le fi
nanc
ial a
sset
s173 1
56
173 1
56
Ass
ets
pled
ged
as c
olla
tera
l11 2
44 4
20
-
-
-
-
-
11 2
44 4
20
Trad
e an
d ot
her
rece
ivab
les
3 7
69 3
28
-
-
-
-
-
3 7
69 3
28
92 3
68 7
96
23 4
19
10 0
75
2 8
94
115 8
43
12 6
00
92 5
33 6
28
Liab
ilitie
s an
d sh
areh
olde
rs' e
quity
Dep
osits
from
cus
tom
ers
57 0
52 0
36
14 7
88
2 7
94
97
1 1
02
-
57 0
70 8
17
Fore
ign
lines
of c
redi
t12 3
96 3
74
-
-
1 8
11 4
17
20 8
76 6
47
4 7
13 1
22
39 7
97 5
60
Loca
l lin
es o
f cre
dit
22 9
10 7
08
-
-
-
-
-
22 9
10 7
08
Oth
er li
abili
ties
3 0
76 0
55
-
-
-
-
-
3 0
76 0
55
95 4
35 1
73
14 7
88
2 7
94
1 8
11 5
14
20 8
77 7
49
4 7
13 1
22
122 8
55 1
40
Net
fore
ign
exch
ange
pos
ition
( 3 0
66 3
78)
8 6
31
7 2
81
( 1 8
08 6
19)
( 20 7
61 9
05)
( 4 7
00 5
21)
3.4
Mar
ket
risk
(co
ntin
ued)
3.4
.2In
tere
st r
isk
sens
itivi
ty a
naly
sis
Inte
rest
rat
e ch
ange
Effe
ct o
n pr
ofit
Effe
ct o
n pr
ofit
befo
re in
com
ebe
fore
inco
me
tax
tax
2012
2011
US$
U
S$
3.4
.2.F
orei
gn e
xcha
nge
risk
As
at 3
1 D
ecem
ber
2012
ZA
RB
WP
GB
PEu
roO
ther
US$
US$
US$
US$
US$
Tota
lU
S$eq
uiva
lent
equi
vale
nteq
uiva
lent
equi
vale
nteq
uiva
lent
US$
Ass
ets
Liab
ilitie
s an
d sh
areh
olde
rs' e
quity
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
3.4
Mar
ket
risk
(co
ntin
ued)
3.4
.2.F
orei
gn e
xcha
nge
risk
(co
ntin
ued)
As
at 3
1 D
ecem
ber
2011
ZA
RB
WP
GB
PEu
roO
ther
US$
US$
US$
US$
US$
Tota
lA
sset
sU
S$eq
uiva
lent
equi
vale
nteq
uiva
lent
equi
vale
nteq
uiva
lent
US$
Bal
ance
s w
ith b
anks
and
cas
h21 0
45 6
99
179 2
98
30 2
34
14 4
01
2 4
64 9
62
14 2
14
23 7
48 8
08
Fina
ncia
l ass
ets
at fa
ir v
alue
thr
ough
pro
fit o
r lo
ss43 9
04
-
-
-
-
-
43 9
04
Loan
s an
d ad
vanc
es
30 5
48 9
61
-
-
-
-
-
30 5
48 9
61
Ass
ets
pled
ged
as c
olla
tera
l 1
1 0
29 9
71
-
-
-
-
-
11 0
29 9
71
Trad
e an
d ot
her
rece
ivab
les
4 5
20 1
95
-
-
-
-
-
4 5
20 1
95
67 1
88 7
30
179 2
98
30 2
34
14 4
01
2 4
64 9
62
14 2
14
69 8
91 8
39
As
at 3
1 D
ecem
ber
2011
Liab
ilitie
s an
d sh
areh
olde
rs' e
quity
Dep
osits
from
cus
tom
ers
46 6
61 1
63
12 3
52
28 9
93
1
77
-
-
46 7
02 6
85
Fore
ign
lines
of c
redi
t11 1
15 1
77
-
-
1 6
54 8
09
19 6
41 8
75
4 7
52 4
55
37 1
64 3
16
Loca
l lin
es o
f cre
dit
10 8
21 1
36
-
-
-
-
-
10 8
21 1
36
Oth
er li
abili
ties
3 1
25 1
62
-
-
-
-
-
3 1
25 1
62
71 7
22 6
38
12 3
52
28 9
93
1 6
54 9
86
19 6
41 8
75
4 7
52 4
55
97 8
13 2
99
Net
fore
ign
exch
ange
pos
ition
(4 5
33 9
08)
166 9
46
1 2
41
(1 6
40 5
85)
(17 1
76 9
13)
( 4 7
38 2
41)
The
Gro
up h
ad n
o of
f bal
ance
she
et fo
reig
n cu
rren
cy e
xpos
ure
as a
t 31 D
ecem
ber
2012 (
31 D
ecem
ber
2011 -
US$
nil).
Fore
ign
exch
ange
ris
kT
he t
able
bel
ow in
dica
tes
the
exte
nt t
o w
hich
the
Gro
up is
exp
osed
to
fore
ign
exch
ange
ris
k as
at
31 D
ecem
ber
2012.T
he G
roup
is m
ainl
y ex
pose
d to
the
Eur
o as
a r
esul
t of
th
e Le
gacy
deb
t an
d be
low
is a
sen
sitiv
ity a
naly
sis
on t
he E
uro
expo
sure
:
Exch
ange
rat
e ch
ange
Effe
ct o
n pr
ofit
Effe
ct o
n pr
ofit
Bef
ore
tax
bef
ore
tax
2012
2011
US$
U
S$
5%
app
reci
atio
n/(d
epre
ciat
ion)
1 0
38 0
95
875 2
59
10%
app
reci
atio
n/(d
epre
ciat
ion)
2 0
76 1
91
1 7
50 5
18
3.4
Mar
ket
risk
(co
ntin
ued)
3.4
.2.F
orei
gn e
xcha
nge
risk
(co
ntin
ued)
As
at 3
1 D
ecem
ber
2011
ZA
RB
WP
GB
PEu
roO
ther
US$
US$
US$
US$
US$
Tota
lA
sset
sU
S$eq
uiva
lent
equi
vale
nteq
uiva
lent
equi
vale
nteq
uiva
lent
US$
As
at 3
1 D
ecem
ber
2011
Liab
ilitie
s an
d sh
areh
olde
rs' e
quity
Fore
ign
exch
ange
ris
k
Effe
ct o
n pr
ofit
Effe
ct o
n pr
ofit
Bef
ore
tax
bef
ore
tax
2012
2011
US$
U
S$
Exch
ange
rat
e ch
ange
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
73
3.4.3. Price riskThe Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated statement of financial position as financial assets at fair value through profit or loss. The Group is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. The Group’s quoted equity securities are publicly traded on the Zimbabwe Stock Exchange.
Below is summary of the impact of increases/(decreases) of the equity index on the Group`s profit for the year and on equity. The analysis is based on the assumption that the equity index had increased/(decreased) by 5% with all other variables held constant and all the Group’s equity instruments moved according to the historical correlation with the index.
Profit for the year would increase/(decrease) by US$ 310 (2011 : US$2 196).
4 CAPITAL MANAGEMENT
The Group's objective when managing capital are :-To safe guard the Group's ability to continue as a going concern so that it can continue to provide returns
to shareholders and benefits for other stakeholders, and-To maintain a strong capital base to support the development of its business
The allocation of capital between specific business operations is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The process of allocating capital to specific operations is undertaken independently of those responsible for the operations. The Management Assets and Liability Committee ("MALCO") sets the assets and liability management policies which determine the eventual asset allocation dependent on desired risk return profiles based on MALCO forecasts on the different markets the Group participates in and economic fundamentals. The Group Risk Management and Compliance Department monitors and ensures adherence to these policies as well as continuously measure the efficacy of these policies through MALCO and various other credit committees.
Although maximisation of the return on risk adjusted capital is the principal basis used in determining how capital is allocated within the Group to particular operations or activities, it is not the sole basis used for decision making. Account is also taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the Group’s longer term strategic objectives. The Group’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.
The Group's capital is monitored using the dollar amount of the net shareholders' equity position, noting and explaining the causes of significant changes. The Group has no set regulatory capital amount.
5 FINANCIAL ASSETS AND LIABILITIES-FAIR VALUE AND RISK MITIGATION POLICES
5.1 Fair value estimationThe table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.
3.4.3. Price risk
4 CAPITAL MANAGEMENT
5 FINANCIAL ASSETS AND LIABILITIES-FAIR VALUE AND RISK MITIGATION POLICES
5.1 Fair value estimation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2012.
At 31 December 2012 Level 1 Level 2 Level 3
US$ US$ US$
Financial assets at fair value through profit or loss 6 198 - -
Total assets 6 198 - -
Total liabilities - - -
At 31 December 2011
Financial assets at fair value through profit or loss 43 904 - -
Total assets 43 904 -
Total liabilities - - -
5.2 Financial instruments not measured at fair value
The table below summarises the carrying amounts and fair values of those financial assets and liabilities presented in the Group's statement of financial position at their fair values. Fair value of deposits from customers approximates carrying amount
Carrying Carryingvalue Fair value value Fair value 2012 2012 2011 2011 US$ US$ US$ US$
Financial assets :Loans and advances to customers 66 443 494 66 443 494 30 548 961 30 548 961
It is assessed that the carrying amount approximate the financial assets’ fair value because of their short tenor and market conditions that had not changed for financial liabilities
At 31 December 2012 Level 1 Level 2 Level 3
US$ US$ US$
Total assets
Total liabilities
At 31 December 2011
Total assets 43 904 -
Total liabilities - - -
5.2 Financial instruments not measured at fair value
Carrying Carryingvalue Fair value value Fair value 2012 2012 2011 2011US$ US$ US$ US$
Financial assets :
Financial liabilities:
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
(a) Loans and advances to customersLoans and advances are net of charges for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. As the loans and advances are issued at variable rates, the carrying amount approximates fair value due to their short tenor.
(b) Deposits from customersThe estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. All deposits are in this category therefore the carrying amount approximates fair value.
5.2 Risk Control
5.2.1 Risk limit control and mitigation policiesThe Group manages, limits and controls concentrations of credit risk wherever they are identified, in particular, to individual counterparties and groups, and to industries .
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, and industry sector are approved by the Board of Directors.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below:
a) CollateralThe Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:
- Mortgages over residential properties; and- Charges over business assets such as premises, inventory and trade receivables.
Longer-term finance and lending to corporate entities are generally secured. In addition, in order to minimise the credit loss, the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.
b) Credit-related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer when required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions - are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.
5.2 Risk Control
5.2.1 Risk limit control and mitigation policies
a) Collateral
b) Credit-related commitments
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
76
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amounts of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
5.2.2Impairment and allowances policiesImpairment allowances are recognised for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes.
The internal rating tool assists management to determine whether objective evidence of impairmentexistsunder IAS 39 Financial Instruments: Recognition and Measurement, based on the following criteria set out by the Group:
- Delinquency in contractual payments of principal or interest;- Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of
sales);- Breach of loan covenants or conditions; - Initiation of bankruptcy proceedings;- Deterioration of the borrower’s competitive position;- Deterioration in the value of collateral; and- Downgrading below investment grade level.
The Group’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets that are individually below materiality thresholds; and (ii) losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgements and statistical techniques.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Cash and cash equivalents include thefollowing for the purposes of the statement ofcash flows:Cash and cash equivalents 10 897 032 23 748 808 10 892 667 23 654 943
7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSSListed equity securities 6 198 43 904 6 166 5 947
Current 6 198 43 904 6 166 5 947
Financial assets at fair value through profit or loss are presented within ’operating activities’ as part of "non cash adjustments" in the statement of cash flows. Changes in fair values of financial assets at fair value through profit or loss are recorded in statement of comprehensive income (note 26). The fair value of all equity securities is based on their current bid prices in an active market, the Zimbabwe Stock Exchange ("ZSE").
Investment in unlisted securities 173 156 - 173 156 -
Non-current 173 156 - 173 156 -
The Group acquired 30 539 ordinary shares in Chengetedzai Depository Company Limited at a cost of $173
156 during the year and the investment has been recognized as an available for sale financial asset. The investment has been carried at cost paid out to acquire the shares to use in calculating the current fare value as there is no observable market data to use in calculating fair value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011 2012 2011
9 LOANS AND ADVANCES TO CUSTOMERS US$ US$ US$ US$
9.1 Allowances for impairment of loans and advancesSpecific and collective allowanceBalance at 1 January 8 170 902 3 438 278 8 144 278 3 411 654
Loans written off ( 623 846) ( 1 012 849) ( 597 222) ( 1 012 849)
Balance at 31 December 9 644 084 8 170 902 9 644 084 8 144 278
9.2.1 Maturity analysis of loans and advances toCustomersUp to one month 9 441 761 16 279 158 9 441 761 6 146 360 Up to three months 9 538 704 12 269 768 9 538 704 12 269 768 Up to one year 35 580 362 2 000 035 35 501 468 2 000 035 Up to 3 years 11 882 667 - 11 882 667 -
66 443 494 30 548 961 66 364 600 30 416 163
Impaired loans and securitiesImpaired loans and securities are loans and securities for which the Group determined that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreements.
Past due but not impaired loansLoans and securities where contractual interest or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of securities/collateral available and/or the stage of collection of amounts owed to the Group.
Loans with renegotiated termsLoans with renegotiated terms are loans that have been restructured due to deterioration of the borrower's financial position and where the Group has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent as satisfactory performance after restructuring.
Allowances for impairmentThe Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowances are a specific loss component that relates to individually significant exposures, and a collective loan loss allowances established for the group of homogenous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.
Write-off policyThe Group writes off a loan/security balance (and any related allowances for impairment losses) when the Group's Credit Control Unit determines that the loans/securities are uncollectible. This determination is reached after considering information such as occurrence of significant changes in the borrower/issuer's financial position such that the borrower/ issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, change off decisions generally are based on a product specific past due status.
2012 2011 2012 2011
US$ US$ US$ US$
9.2.1 Maturity analysis of loans and advances toCustomers
9 LOANS AND ADVANCES TO CUSTOMERS
9.1 Allowances for impairment of loans and advances
Impaired loans and securities
Past due but not impaired loans
Loans with renegotiated terms
Allowances for impairment
Write-off policy
78
CONSOLIDATED BANKCONSOLIDATED BANK
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
9.2.2 Sectorial analysis of loans and advances to 2012 2011
Individuals and other services 6% 4 073 865 2% 497 160
100% 66 443 494 100% 30 548 961
9.3 Assets pledged as collateralAssets are pledged as collateral for security deposits relating to fixed deposits and bankers acceptances from other financial institutions.
The nature and carrying amounts of the assets pledged as collaterals are as follows:
Asset Related liability2012 2011 2012 2011US$ US$ US$ US$
Financial assets held to maturity 11 244 420 11 029 971 16 544 862 8 040 008
Amounts due by group companies - - 104 229 630 947
Other - 16 563 - 16 564
3 769 328 4 520 195 3 610 956 4 225 607
Current 3 769 328 4 520 195 3 610 956 4 225 607
10.1 Allowances for impairment of trade and other recievablesBalance at 1 January ( 192 451) - ( 192 451) - Charge for the year ( 333 341) ( 192 451) ( 198 301) ( 192 451)
Balance at 31 December ( 525 792) ( 192 451) ( 390 752) ( 192 451)
9.2.2 Sectorial analysis of loans and advances to 2012 2011
Customers % US$ (%) US$
9.3 Assets pledged as collateral
Asset Related liability2012 2011 2012 2011US$ US$ US$ US$
CONSOLIDATED BANK
2012 2011 2012 2011
10 TRADE AND OTHER RECEIVABLES US$ US$ US$ US$
Net trade receivables
10.1 Allowances for impairment of trade and other recievables
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
11 INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
11.1 Investment in subsidiariesThe Group has inherited subsidiaries from its predecessor and the shareholding in these entities is as follows:
Shareholding Shareholding as at 31 Dec as at 31 Dec
All subsidiaries have been consolidated in these financial statements.
In May 2012, the Group disposed of its investments in Simtake Investments (Private) Limited (“Simtake”) and Makeup Investments (Private) Limited (“Makeup”). The subsidiaries operated in the housing sector and contributed a loss of $394 507 to the Group for the period from January 2012 to May 2012 (2011: $14 912 ). The year end for all subsidiaries is 31 December.The details of assets and liabilities disposed and the disposal consideration are as follows:
Simtake Makeup Investments Investments
(Private) (Private) Limited Limited Total
US$ US$
Carrying amount of Group's interest in subsidiaries ( 42 121) 64 068 17 947
Shareholding Shareholding as at 31 Dec as at 31 Dec
2012 2011$ % $ %
Simtake Makeup Investments Investments
(Private) (Private) Limited Limited Total
US$ US$ US$
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
11.2 Investments in associates
11.2 Investments in associates
The Group has inherited associates from its predecessor and the shareholding in these entities is as follows:
The Group acquired an additional shareholding in Africom Continental (Private) Limited at a cost of US$1 050 000 through a rights issue. The transaction resulted in the Group's shareholding in Africom Continental (Private) Limited increasing to 33.31% from 30% before the rights issue.
Country of Assets Liabilities Revenue Profit/(loss) % interest Incorporation US$ US$ US$ US$ held
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
The Group’s investment properties were revalued at 31 December 2012 by independent professionally qualified valuers who hold a recognised relevant professional qualification and have recent experience in the locations and categories of the investment properties valued.
The carrying amount of the investment property is at fair value as determined by an independent valuation. Fair values were determined having regard to market transactions for similar properties in the same location as the Group's investment properties.
4 264 869
CONSOLIDATED BANK2012 2011 2012 2011
CONSOLIDATED BANK2012 2011 2012 2011
CONSOLIDATED BANK2012 2011 2012 2011
12 INVENTORIES
13 INVESTMENT PROPERTY
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
83
ConsolidatedConsolidated
Investment property includes a number of commercial and residential properties that are leased to third parties. On average the leases contain a cancellable period of up to one year. Subsequent renewals are negotiated with the lessee.
2012 2011
14 INTANGIBLE ASSETS US$ US$
Computer softwareYear ended 31 DecemberOpening net book amount 706 878 -
Net book amount 1 782 991 326 540 878 391 10 415 1 400 000 4 398 337
Property and equipment are subjected to impairment testing by comparing the carrying amounts at the reporting date, with the market prices quoted for similar assets and adjusted for different ages. No items of property and equipment were considered impaired.
Depreciation expense of US$ 343 068 (2011: US$ 354 509) has been charged to operating expenses (note 30)
Computer Land and and office Motor Fixtures Capital workbuildings equipment vehicles and fittings in progress Total
US$ US$ US$ US$ US$ US$ Year ended At 31 December 2012
Net book amount
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
84
15(b)PROPERTY AND EQUIPMENT - BANK
Computer Land and and office Motor Fixtures Capital workbuildings equipment vehicles and fittings in progress Total
Year ended US$ US$ US$ US$ US$ US$
31 December 2011Opening net book amount 1 855 284 49 411 483 624 2 353 2 754 928 Additions - 242 103 434 293 11 271
Net book amount 1 782 991 326 540 878 391 10 415 2 998 337
Property and equipment are subjected to impairment testing by comparing the carrying amounts at the reporting date, with the market prices quoted for similar assets and adjusted for different ages. No items of property and equipment were considered impaired.
364 256
435 636 1 123 303
(799 892)
-
-
--
-
-
-
-
-
-
-
-
-
15(b)PROPERTY AND EQUIPMENT - BANK
Year ended 31 December 2011
Net book amount
At 31 December 2011
Net book amount
Year ended 31 December 2012
Closing Net book amount
At 31 December 2012
Net book amount
Computer Land and and office Motor Fixtures Capital workbuildings equipment vehicles and fittings in progress Total
US$ US$ US$ US$ US$ US$
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
Depreciation expense of US$ 343 068 (2011: US$ 354 509) has been charged to operating expenses (note 30)
2012 2011
16 NON-CURRENT ASSETS HELD FOR SALE US$ US$
Investments in associates - 74 140
Construction materials and prepayments to contractors - 264 706
Total - 338 846
The assets previously classified as non-current assets held for sale have been reclassified to their original classification following the decision by the Group to dispose its interest in Makeup Investments (Private) Limited and Simtake Investments (Private) Limited, which were its subsidiaries (note 11.2).
17 SHARE CAPITAL AND SHARE PREMIUM
Authorised share capital15 000 000 ordinary shares with a nominal value of US$0,01Zero percent, fully convertible, non redeemable preference shares
The directors are authorised to issue an unlimited number of preference shares.
Issued share capital Share
Number Share capital premium Totalof shares US$ US$ US$
At 1 January 2011 2 153 760 21 537 849 743 871 280
Issue of shares 177 354 1 774 4 998 226 5 000 000
At 31 December 2011 2 331 114 23 311 5 847 969 5 871 280
At 1 January 2012 2 331 114 23 311 5 847 969 5 871 280
Issue of shares - - - -
At 31 December 2012 2 331 114 23 311 5 847 969 5 871 280
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank. All shares rank equally with regard to the Group's residual assets.
18 OTHER EQUITY RESERVES
18.1 Non distributable reservesThe reserve arose as the net effect of restatement of assets and liabilities previously denominated in the Zimbabwe dollar on 1 January 2009.
2012 2011
US$ US$
Share
Number Share capital premium Totalof shares US$ US$ US$
16 NON-CURRENT ASSETS HELD FOR SALE
Total
17 SHARE CAPITAL AND SHARE PREMIUM
Authorised share capital
Issued share capital
At 1 January 2011
At 31 December 2011
At 1 January 2012
At 31 December 2012
18 OTHER EQUITY RESERVES
18.1 Non distributable reserves
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
86
19 DEPOSITS FROM CUSTOMERS CONSOLIDATED BANK
2012 2011 2012 2011
Deposits due to customers are primarily composed of US$ US$ US$ US$
amounts payable on demand and term deposits.Large corporate customers 56 764 299 45 821 803 56 886 027 45 821 803
Retail customers 306 518 880 882 306 518 880 882
57 070 817 46 702 685 57 192 545 46 702 685
19.1 Maturity analysis of deposits from customersUp to one month 36 988 177 36 988 177 36 988 177 36 988 177
Up to three months 500 000 500 000 500 000 500 000
Up to six months 19 582 640 9 214 508 19 704 368 9 214 508
57 070 818 46 702 685 57 192 545 46 702 685
Deposits due to customers only include financial instruments classified as liabilities at amortised cost. The fair value of the deposits approximate the fair value due to their short tenor.
19.2 Sectorial analysis of deposits from customers 2012 2011
(%) US$ (%) US$
Communication 1% 400 000 3% 1 240 900
Financial markets 2% 1 400 000 1% 501 042
Fund managers and pension funds 20% 11 430 450 19% 9 066 329
Individuals 12% 6 652 011 0% 241 919
Government and public sector institutions 53% 30 474 463 75% 34 795 889
Other services 12% 6 713 893 2% 856 606
100% 57 070 817 100% 46 702 685
20 FOREIGN LINES OF CREDIT 2012 2011
US$ US$
Lines of credit 39 797 560 37 164 316
Current 37 544 268 35 964 316
Non-current 2 253 292 1 200 000
39 797 560 37 164 316
20.1 Maturity analysis of loans
Principal balances not yet due 2 253 292 1 200 000
Arrears 37 544 268 35 964 316
39 797 560 37 164 316
20.3 Maturity analysis of gross amountOn demand, due to being in arrears 37 544 268 35 964 316
Maturity within 1 year - - Maturity after 1 year but within 5 years 2 253 292 1 200 000
39 797 560 37 164 316
19 DEPOSITS FROM CUSTOMERS CONSOLIDATED BANK
2012 2011 2012 2011
US$ US$ US$ US$
19.1 Maturity analysis of deposits from customers
19.2 Sectorial analysis of deposits from customers 2012 2011
(%) US$ (%) US$
20 FOREIGN LINES OF CREDIT 2012 2011
US$ US$
20.1 Maturity analysis of loans
20.3 Maturity analysis of gross amount
20.4
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
21 LOCAL LINES OF CREDIT AND BONDS
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
2012 2011US$ US$
Bonds 17 950 965 -
Local lines of credit 4 959 743 10 821 136
Total 22 910 708 10 821 136
Current 10 943 398 10 821 136
Non current 11 967 310 -
Lines of credit and bonds are recognised initially at fair value, net of transaction costs incurred. Lines of credit and bonds are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.
22.1 Provision for outstanding employee leaveEmployee entitlements to annual leave are recognised when they accrue to employees. The provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date and the charge is recognised in the statement of comprehensive income within "employee benefit costs" (note 30.1 ).
23.1 Interest income:Loans and advances to customers 13 513 891 14 886 407
23.2 Interest expense:Deposits due to customers ( 5 210 432) ( 2 885 744)
Foreign lines of credit ( 1 337 566) ( 2 066 265)
( 6 547 998) ( 4 952 009)
24 LOAN IMPAIRMENT CHARGESLoans and advances to customers (note 9 )Increase in impairment ( 2 097 028) ( 5 745 473)
25 FEE AND COMMISSION INCOME
Advisory and management fees 1 944 559 2 616 219 Other 454 260 258 023
2 398 819 2 874 242
26 NET GAINS / (LOSSES) ON FINANCIAL ASSETS AT FAIR VALUE THROUGHPROFIT OR LOSS
Listed equity securities 3 542 ( 4 023)
27 OTHER OPERATING INCOMERental income 304 031 258 955
Other operating income 1 324 196 175 298 1 628 227 434 253
28 NET GAINS ON FAIR VALUE OF INVESTMENT PROPERTY
Realised gains from disposal of investment property 553 000 -
Unrealised gains from fair value adjustment of investment property 3 711 869 1 016 750
4 264 869 1 016 750
29 NET FOREIGN EXCHANGE GAINS
Net realised gains from dealing in foreign currency 474 993 760 169
Net unrealised (losses)/gains from translation of foreign currency balances ( 137 905) 711 955 337 088 1 472 124
2012 2011US$ US$
23 NET INTEREST INCOME
23.1 Interest income:
23.2 Interest expense:
24 LOAN IMPAIRMENT CHARGES
25 FEE AND COMMISSION INCOME
26 NET GAINS / (LOSSES) ON FINANCIAL ASSETS AT FAIR VALUE THROUGHPROFIT OR LOSS
27 OTHER OPERATING INCOME
28 NET GAINS ON FAIR VALUE OF INVESTMENT PROPERTY
29 NET FOREIGN EXCHANGE GAINS
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
2012 2011US$ US$
30 OPERATING EXPENSESRepairs and maintenance 227 688 244 437 Employee benefits expense (note 30.1) 6 096 679 6 056 912 Telecommunication and postage 71 414 76 907 IT and software costs 244 656 90 749
Directors remuneration: - for services as directors 179 400 202 992 Operating lease payments 174 406 150 159
Water, electricity and rates 175 623 100 573
Professional fees 151 252 128 851 Audit fees:- current year - - - prior year 271 200 139 919 Amortisation (note 14) 231 038 93 014
Depreciation (note 15) 343 068 354 509
Fuel and lubricants 69 687 67 293
Travel and entertainment 196 871 157 441 Marketing and public relations 49 199 54 844
Pension FundThe Group operates a defined contribution plan for all permanent employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Contributions are paid to a separately
2012 2011US$ US$
30 OPERATING EXPENSES
30.1 Employee benefit expense
Post employment benefits
Pension Fund
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
92
30.1 Employee benefits expense (continued)administered fund on a mandatory basis. Contributions to this fund are charged against income when incurred. The Group has no further obligations once the contributions have been paid.
2012 2011US$ US$
Contributions made during the year 454 600 378 211
National Social Security Authority SchemeThe Group and all its employees contribute to the National Social Security Authority Scheme, which was promulgated under the National Social Security Act (Chapter 17:04). The Group'sobligations under the scheme are limited to specific contributions legislated from time to time.
2012 2011US$ US$
Contributions for the year 59 450 43 852
31 EARNINGS PER SHARE
Basic and diluted earning per shareBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Bank by the number of ordinary shares in issue during the year. No dilutive instruments were held during the year. (2011 - US$nil)
The calculation of basic earnings per share at 31 December was based on the following:
Number of issued ordinary shares 2 331 114 2 331 114
Basic earnings per share (US cents) 153 53
Dividends per shareThe dividend paid in 2012 was US$0.21 per share and totalling US$499,978 which was declared and approved at the last annual general meeting held on 19 October 2012.
32 CONTINGENCIES
a) Contingent assetsThe Group has 20% shareholding in both Shungu Engineering (Private) Limited and Bestafoam (Private) Limited and there are shareholder issues in these entities, hence the Group is not able to have access to financial records and operations on the respective companies. The directors are of the opinion that the results of recent and continuing negotiations with co-shareholders have given strong indications that access to financial records and operations is probable in full in the near future.
33 COMMITMENTS
a) Loan commitments, guarantees and other financial facilitiesAt 31 December 2012, the Group had contractual amounts for off-balance sheet financial instruments that commit it to extend guarantees and loans as follows:
30.1 Employee benefits expense (continued)
National Social Security Authority Scheme
31 EARNINGS PER SHARE
Basic and diluted earning per share
Dividends per share
32 CONTINGENCIES
a) Contingent assets
33 COMMITMENTS
a) Loan commitments, guarantees and other financial facilities
2012 2011US$ US$
2011US$ US$
2012 2011US$ US$
Loan commitments 32 460 959 19 853 248
b) Operating lease commitmentsThe Group leases premises and lease terms are for five years and are renewable at the end of the lease period. The future aggregate minimum lease payments under non-cancellable leases are as follows:
2012 2011US$ US$
No later than 1 year 210 048 126 385
The lease rentals are renegotiated annually in January.
34 FUNDS UNDER MANAGEMENT
Government funds under managementThe Government of Zimbabwe disburses, through the Group, fiscal allocations to parastatals and government infrastructure projects. The funds are being managed by the Group for a fee and with no credit risk residual to the Group.
2012 2011US$ US$
Held on behalf of:Government of Zimbabwe 197 519 934 175 762 883
Represented by:Sinking fund 6 960 62110 821 136
Amounts awaiting disbursement 4 478 302 11 441 508 Loans and advances to parastatals and government implementing agencies 186 081 011 153 500 239
197 519 934 175 762 883
35 RELATED PARTIESRelated party transactions are a normal feature of business and are disclosed in terms of IAS 24: Related Party Disclosures. Related party transactions may affect the assessment of operations, risk and opportunities facing the organisation.
Identity of related partiesThe Group is controlled by the Government of Zimbabwe which constitutes the major shareholder. The Group has a related party relationship with its associates and key management.
The following transactions were carried out with related parties:A number of banking transactions are entered into with related parties in the normal course of business. For the year ended 31 December 2012, these included:
a) Sales and purchases of goods and servicesThere were no sales and purchases of goods and services with any related parties
2012 2011US$ US$
2012 2011US$ US$
2012 2011US$ US$
b) Operating lease commitments
34 FUNDS UNDER MANAGEMENT
Government funds under management
Held on behalf of:
Represented by:
35 RELATED PARTIES
Identity of related parties
The following transactions were carried out with related parties:
a) Sales and purchases of goods and services
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
93
b) Key management compensationKey management includes directors (executive and non-executive) and members of the Executive Committee. The compensation paid or payable to key management for employee services is shown below:
2012 2011US$ US$
Salaries and other short-term employee benefits 1 300 794 1 534 202
Post-employment benefits 91 775 88 099
1 392 569 1 622 301
c) Loans and advances to related parties Directors and Directors and
other key other keymanagement Associated management Associated
Loans outstanding at 31 December 467 708 1 677 686 104 906 -
Interest income earned 16 445 269 923 - -
No allowance for impairment was required in 2012 (2011: US$ nil) for the loans made to key management personnel and a general allowance of $82 861 was made on loans advanced to associated companies (2011: US$ nil).
The loans issued to directors and other key management personnel are unsecured, carry fixed interest rates and are payable on maturity.
d) Deposits from related parties Directors and Directors and
other key other keymanagement Associated management Associated
The above deposits are unsecured, carry fixed interest rates and repayable on demand.
e) Director's shareholdingsAs at 31 December 2012, the directors did not hold directly or indirectly any shareholding in the Bank.
36 EVENTS AFTER THE REPORTING DATEThe Board of Directors approved a dividend of US$0.21 per share for every share in issue as at 31December 2012. The declaration was made on 21 May 2013.
2012 2011US$ US$
Directors and Directors and
other key other keymanagement Associated management Associated
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2012
94
NOTICE TO SHAREHOLDERS - 28TH AGMNOTICE TO SHAREHOLDERS - 28TH AGM
th Notice is hereby given that the 28 Annual General Meeting of Members of the Infrastructure Development Bank of Zimbabwe (IDBZ) will be held in the Boardroom, IDBZ House, 99 Rotten Row, Harare, Zimbabwe
on Thursday, 27 June 2013 at 11:00 hours to transact the following business:
ORDINARY BUSINESS
1. To receive, consider and adopt the Annual Financial Statements and Reports of the Directors and Auditors for the year ended 31 December 2012;
2. To approve the payment of a dividend for the financial year ended 31 December 2012;
3. To approve the remuneration of the auditors for the year ended 31 December 2012 and to note the retirement of PricewaterhouseCoopers, Chartered Accountants in terms of Section 25B (2) of the IDBZ Act (Chapter 24:14);
4. To appoint external auditors of the Bank for the year ending 31 December 2013 in terms of Section 25B (1) of the IDBZ Act (Chapter 24:14), who will hold office until the conclusion of the next Annual General Meeting;
5. To approve the remuneration of the Directors for the year ended 31 December 2012;
6. To transact any other business that may be transacted at the Annual General Meeting.
SPECIAL BUSINESS
7. ORDINARY RESOLUTION That the authority given to the Directors of the Bank to issue ordinary shares in the capital of the Infrastructure Development Bank of Zimbabwe (IDBZ) to institutional investors up to a maximum of 49% of the issued share capital through private placement, be and is hereby extended by twelve months from date of the Annual General Meeting. Upon its expiration and it being considered necessary to extend it, this authority shall be subject to further renewal by Shareholders at the Bank's next Annual General Meeting.
A member entitled to attend and vote at the meeting may appoint a proxy to attend, speak and vote in his stead. A proxy need not be a Member of the Bank. Proxy forms must be lodged at the Registered Office of the Bank not less than 48 hours before the time appointed for the meeting.
th Notice is hereby given that the 28 Annual General Meeting of Members of the Infrastructure Development Bank of Zimbabwe (IDBZ) will be held in the Boardroom, IDBZ House, 99 Rotten Row, Harare, Zimbabwe
on Thursday, 27 June 2013 at 11:00 hours to transact the following business:
ORDINARY BUSINESS
SPECIAL BUSINESS
7. ORDINARY RESOLUTION
Registered Office:
95
PROXY FORM
I/WE ……………………………………………………………………………….........
of …….…………………………………………………………………………………
being the registered holder of …………………………………………………………….
Ordinary Shares in the Infrastructure Development Bank of Zimbabwe
hereby appoint ………………………………………………………………………….
of ………………………………………………………………………………………..
or, failing him, the Chairman of the meeting as my/our proxies, to vote for me/us and on my/our behalf at the ANNUAL GENERAL MEETING of the Bank to be held in the Boardroom, IDBZ House, 99 Rotten Row, Harare, Zimbabwe on Thursday, 27 June 2013 commencing at 11:00 hours and at any adjournment thereof.
Signed this ………………. Day of ………………… 2013
Signature of Member ……………………………………
NOTE:
A member entitled to attend and vote at the meeting may appoint any person or persons to attend, speak and vote in his stead. A proxy need not be a Member of the Bank. Proxy forms must be lodged with the Secretary not less than forty-eight (48) hours before the time appointed for the meeting.
Registered Office:99 Rotten Row P O Box 1720 Harare Zimbabwe Tel: 774226/7, 750171-8Fax: 749012
